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In the pantheon of economic theories, the tradeoff between equality and efficiency used to occupy an exalted position.The American economist Arthur Okun, whose classic work on the topic is called "Equality and Efficiency: The Big Tradeoff," believed that public policies revolved around managing the tension between those two values. For example, in high-inequality societies, where poor households are deprived of economic and educational opportunities, economic growth is depressed.Early this year, economists at the International Monetary Fund produced empirical results that seemed to upend the old consensus. They found that greater equality is associated with faster subsequent medium-term growth, both across and within countries.Like almost everything else in social life, the relationship between equality and economic performance is likely to be contingent rather than fixed, depending on the deeper causes of inequality and many mediating factors. So the emerging new consensus on the harmful effects of inequality is as likely to mislead as the old one was.It is good that economists no longer regard the equality-efficiency tradeoff as an iron law.After all, there really is only one universal truth in economics: It depends.
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