The Complex Inequality–Innovation–Public Investment Nexus: What We (Don’t) Know, What We Should Know and What We Have to Do

Abstract

In this paper, we deal with the complex relationship connecting inequality to innovation, and the ways through which public investment can affect it. We first stress that inequality and innovation may interact in many different ways. The positive relation that part of the economic theory often assumes to exist between (initially) rising inequality and improving innovation performances emerges as only one among many other far less virtuous dynamic trajectories. We then analyse the specific case of the US. We put emphasis on the possible perverse effects that the financialization of the US economy may have on the inequality–innovation nexus. We note that the US developmental state—very often neglected by the economic literature—can effectively mitigate such undesirable outcomes. According to our interpretation of recent developments in the US economy, the widespread belief in the positive pro-innovation effects of fierce cut-throat remuneration systems may prove to be ungrounded.

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