Economic growth is the main determinant of poverty alleviation as shown by the huge international disparities in income per person. In most of Africa and parts of Latin America and Asia, poverty is the norm because economic growth has failed to take off. Economic growth, however, is necessary but not sufficient—growth must also be inclusive and shared. East Asian economic growth has contributed tremendously to poverty reduction because it has been based on growth of labor-intensive exports of manufactured products, thus generating large-scale employment for unskilled workers.

Participation in the global economy has been the key to growth and poverty reduction in countries such as Korea, Malaysia, China and Vietnam in Asia, Chile and Costa Rica in Central America, and Botswana and Mauritius in Africa. In addition, a social safety net plays an important part in sharing the fruits of growth and globalization.

Economic growth requires a market economy, but the market generates disparities in incomes. Social insurance programs and public education can alleviate these disparities. Before a country can distribute, however, it must produce, hence the importance of growth.

Professor of Economics at Swarthmore College, Stephen Golub

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The private sector is the engine of growth, but the government must provide the institutions that support entrepreneurship and investment, while restraining the excesses of capitalism—inequality, instability and environmental damage. Entrepreneurship thrives under a strong state, but one which supports rather than predates on business.

The most rapid growth in the world economy, particularly in Europe and the United States, occurred in the 1945-1970 period, when countries dismantled the protectionism of the 1930s, gradually liberalized world trade, but also strengthened social safety nets and regulatory systems, in particular of the financial system.

The Reagan-Thatcher-led turn towards more radical free-market liberalization, deregulation and privatization policies has been marked by slower growth and much greater inequality than the earlier post-war years. East Asian growth has also featured an eclectic mix of liberalization and government intervention, in countries such as South Korea and China.

Professor of Economics at Swarthmore College, Stephen Golub

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The experience of various countries over the past 150 years suggests that a mixed economy, with an appropriate combination of free markets and government intervention, is most conducive to prosperity. The government must create a level playing field while prohibiting abuses. Public investment and private investment are both necessary.

The government must provide public goods—education, infrastructure, the rule of law, and a sense of respect for social obligations. The global financial crisis is a reminder that lack of regulation of financial markets invites disaster. The financial abuses that led to the crisis also show that the profit motive must be tempered by ethical conduct in business, which the government can foster through regulation and uncorrupt leadership.

Professor of Economics at Swarthmore College, Stephen Golub

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A tax system must balance among several competing social objectives: 1) raise sufficient revenue to pay for essential government services, 2) limit the disincentive effects of taxation on work and investment, and 3) mitigate inequalities of income and wealth. The first and third goals suggest that rates should be highest on high-income households, i.e., the tax system should be progressive. On the other hand, the taxation of wealthy individuals should not be so high as to discourage them from working and/or to encourage socially-wasteful tax evasion.

Prior to the Ronald Reagan’s tax reforms, the top marginal income tax rate in the United States was around 70 percent. Such punitive rates are likely to create massive distortions and tax avoidance efforts. It was therefore appropriate to bring down tax rates in the 1980s. President George W. Bush’s income tax reductions, however, are much less defensible, because marginal tax rates were already moderate. Moreover, inequality has worsened dramatically in the United States in the last thirty years, with income gains concentrated in the top 10 percent and especially the top 1 percent of the income distribution. Taxation of the wealthy should therefore be bumped up on equity grounds but not all the way back to pre-Reagan levels.

Professor of Economics at Swarthmore College, Stephen Golub

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Philosophical differences on the role of the government versus the market are the main source of disagreements about economics. Critics of government intervention such as Milton Friedman fundamentally distrust government’s motives and competence, while believing that the “invisible hand” of self-interest is conducive to freedom and economic efficiency. Opponents of laissez-faire, such as John Maynard Keynes, on the other hand, believe that unregulated markets lead to instability, inequality, and even immorality. When either view is taken to an extreme, disaster can result. Pragmatism should be the basis for economic policy, not ideology, with a judicious mix of entrepreneurship and government regulation.

Professor of Economics at Swarthmore College, Stephen Golub

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