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24 / 09 / 2004
Economists at the dialogue on the Washington Consensus warn about the growing inequality of income distribution

Intense session of the Dialogue “From Washington to the New Global Governance" in which economists Olivier Blanchard, Alice Amdsen and Paul Krugman dealt with key aspects of the world economy like unemployment and employment protection, the transformation of development and inequality and redistribution. The experts warned of the negative effects of the growing inequality in income distribution, a phenomenon that in the United States has reached alarming proportions," said Krugman.

Aside from the three speakers, Nobel Prize Winner Joseph Stiglitz, Daniel Cohen, Miguel Sebastián and Guillermo de la Devesa also spoke and agreed on the negative consequences of this phenomenon. This trend is on the rise. In the US 1% of Americans have increased their profits by 500% over the last ten years. Krugman pointed out that, “more income inequality, more social inequality” and emphasized the fact that this explosion coincided with the mandate of former president Ronald Reagan although he admitted to not knowing the specific laws that caused this.

Stiglitz said that the middle class is the most interested in democracy, which is diminished by income inequality because the “powerful minorities are not as interested in democracy" in bring up the fall of the Iron Curtain in Russia. Guillermo de la Devesa emphasized that in Latin America, where 10% of the population had 48% of the income is the area "with the most inequality in the world" and he emphasized that in the countries with the most imbalance in this field-Argentina and Uruguay-inequality is even greater.

De la Devesa said that, “the more inequality income, the harder to reduce income and thus long term growth is lower. The consequential polarization has a snowball effect since the poor do not have access to loans, there is an explosion of violence and then longer, more profound crises." He said that in most Latin American countries where the underground economy reaches 50% of economic activity, there are no capital gains taxes and indirect taxes make up 50% of the government budgets so therefore distribution of wealth becomes very difficult, " he concluded.

Olivier Blanchard concentrated one of the backbones of welfare states, unemployment, and suggested that companies should not only pay for lay offs but for dismissals as well. The economist suggested that there be a tax managed by the state for such subsidies. Blanchard called for the so-called rich countries to improve their unemployment systems in order to avoid having people get to use to unemployment insurance.

Alice Amdsen said that rich countries should stop growing as their imports cannot continue to be substituted. She said that the only subsidies the WTO--in technology and regional subsidies-- are for the most advanced countries. She said, "We need imaginative policies that the World Bank does not provide" since they focus on reducing poverty "which has nothing to do with development." After saying that “among developing countries, those in Latin America are in the worst situation," Amdsen said that, "the world is changing and the Washington monopoly is an error”. Miguel Sebastián proclaimed that: “If economists do not direct the desires we run the risk of falling into the hands of populism. I don't know if this is purgatory or hell, but we don't have much time left."