Are Equality and Prosperity Less Strange Bedfellows than Once Assumed?

An interesting post from the messiah of coffee-shop liberals everywhere, Paul Krugman, puts forward the argument that recent history in South America may show that governments can combat inequality and have more success increasing economic growth than other countries. Conventional economic wisdom tells us that equity is, by and large, a trade-off with growth rates, and that inequality is a byproduct of swifter growth. Krugman's argument is that the past decade in South America, where leftist countries have grown at substantially higher rates, at the very least questions this (He does all of this by using graphs comparing changes in Gini coefficients, a simple measure of economic inequality, to GDP growth).

Krugman does concede that it's difficult to compare the experiences of relatively developing economies to ones like the US. He also, I think, misses the point about the advantage of these countries being able to produce energy relatively cheaply (Venezuela is oil-rich, and Brazil is the only country in the world with a sustainable method of producing biofuel). Nonetheless, there is something to consider here.

The general argument I would make is that economic inequality, at larger margins, impedes the development of human capital in the long-run. I think this is becoming increasingly more important as the world digitizes many fields, notably manufacturing, crowding out jobs for untrained labor. Success is not just absolute, but also relative, and an economically divided America means a lot more than an economically divided America (relying on Yoda-speak there, I know.) There are vital ethical arguments for reducing economic inequality as well, but tossing aside my bleeding-heart for a minute, I think this is something important. When we speak of reducing economic inequality, we also speak of providing a more equal playing-field for the next generation. This playing-field will have concrete benefits going forward, chief among them reducing divisions in ability, presumably leading to nations more willing to work together for the greater good.