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US blue-chip stocks eked out slight gains on Friday amid renewed hopes for an economic recovery, while bond prices inched lower after US employment figures hinted at mild improvement in the troubled US labour market.

The dollar vaulted higher, lifted in part by a May US jobs report was not as dire as expected and sparked hope that the economy is on the mend.

But the greenback's rise sent gold prices lower.

In New York, oil prices hit 11-week highs above $US31 a barrel as Opec producers Saudi Arabia and Venezuela sought assurances that nonmember Mexico would follow the cartel in any move to tighten supply.

The Nasdaq Composite index finished lower on near-record volume as investors booked profits from a rally on news of Oracle's proposed takeover of software rival PeopleSoft.

The broad Standard and Poor's 500 index also ended Friday's session slightly lower. But all three major stock indexes still managed to end the week higher, marking a second consecutive week of gains.

"The most critical piece of news ... is Oracle's bid for PeopleSoft," said Keith Keenan, vice president of institutional trading at brokerage Wall Street Access. "That means Oracle is confident about the economy going forward, and they think earnings are going to hold up."

A government report showing US payrolls shrank by only 17,000 jobs in May, a much smaller decline than expected, helped investors' sentiment as the data hinted of improving conditions in the weak labor market. The same report, though, showed the US.unemployment rate rose in May to 6.1%, the highest since July 1994, from April's 6%. But this was in line with Wall Street's expectations.

The blue-chip Dow Jones industrial average rose 21.49 points or 0.24% to finish at 9,062.79, after hitting a session high of 9,215.88.

The Standard and Poor's 500 index fell 2.38 points, or 0.24%, to 987.76, after earlier rising above 1,000 for the first time in about a year.

The tech-driven Nasdaq Composite Index closed down 18.59 points, or 1.13%, at 1,627.42.

Currency and commodities

The euro slumped to a session low of $US1.1686, a loss of more than 1 percent, before climbing back to $US1.1701 at the close of US currency trading. That was below the euro's late Thursday level of $US1.1841 in New York.

The dollar surged to a session high of 118.92 against the Japanese yen, up more than 1 percent, before easing back to 118.69 yen at the close. That was above the dollar's late Thursday level of 117.63 yen in U.S. trading.

Gold's tight correlation with the volatile euro has been reliable for days. On the Commodity Exchange in New York, gold for August delivery fell $5 to end at $US364.50 an ounce.

On the New York Mercantile Exchange, July crude oil jumped 54 cents to settle at $US31.28 a barrel, hitting its highest price since March 19.

Overseas, the FTSE Eurotop 300 index of pan-European blue-chip shares closed up 2.24% at 856.24. The Nikkei average ended 1.49% up at 8,785.87, its highest close since January 23.

<a href=cbs.marketwatch.com>THOM CALANDRA'S STOCKWATCH By Thom Calandra, CBS.MarketWatch.com Last Update: 12:48 PM ET June 6, 2003

SAN FRANCISCO (CBS.MW) - When executives from 15 or so gold mining companies gather in San Francisco next week, fund managers will be asking searching questions about the metal.

Can gold build upon a two-year rally that took it as high as $390 an ounce earlier this year? Will gold mining stocks join the rally that has propelled shares of both small-cap growth mutual funds and individual companies, largely in the technology sector?

Which exploration companies are most likely to be scooped up by the industry's giants in the never-ending balance-sheet quest to increase provable reserves of bullion? Most importantly, analysts, executives and money managers will be debating whether several new forms of "paper gold" scheduled for release this summer can lead investors to stake part of their stocks-dominated portfolios to bullion.

Gold these days resembles a critically acclaimed Hollywood film that's barely breaking even at the box office. Investors are counting on the sequel for the real fireworks.

The Denver Gold Group, one of several organizations that host mining forums in North America, is stepping up its schedule of shows aimed at professional investors. This year, as gold prices rallied from multi-year lows, the Denver trade group staged a Switzerland conference for the first time.

With the San Francisco show scheduled for next week, the trade association is attempting to enhance gold's image among hedge fund managers, mutual fund professionals and the financial press. Right now, the metal could use a nudge.

With the stock market rally dominating the attention of investors, gold this year has been on the back burner. The metal's dollar price, $363 an ounce, and slow-moving gold mining shares as measured by the XAU Index (XAU: news, chart, profile), can't compete with the price leaps of small-cap companies that are enjoying a rush of investor interest.

Yet gold mining stocks slowly are perking up, with many large companies exceeding profit expectations and dramatically improving their operating cash flows, thanks to the highest average gold prices in more than six years. Small producers, such as Wheaton River Minerals (WHT: news, chart, profile) and Iamgold (IAG: news, chart, profile), meanwhile, are trying to prove they deserve to be considered growth stocks in a world where most investors steer clear of anything related to natural resources.

"I think gold companies like Wheaton River will show investors they can consistently lower costs and raise production levels, and money managers will start to view them as true growth vehicles at bargain prices," says Frank Holmes, chief executive of $1.2 billion asset manager and gold specialist U.S. Global Investors.

There are some, including this writer, who see the gold group doubling in price, and more, in the second-half of 2003 -- even as the small-cap stock rally continues to thrive. For more on the small-cap rally, complete with Watch and Recommended Lists, see: The Calandra Report.

"The XAU hit 152.70 on Feb. 5, 1996, the day gold hit its last high of $414.80," says John C. Doody of Gold Stock Analyst. "Now the XAU is around 77. While the stocks in the index (Newmont Mining (NEM: news, chart, profile), Gold Fields (GFI: news, chart, profile) and so on) have changed, I still expect the XAU to double when gold climbs to around $415. So I expect the XAU will much more than double in 2003."

The mining stocks, of course, depend on the gold price to boost their returns. After reaching $390 an ounce in February, gold took a dive. Investors fled the metal after the successful invasion of Iraq. Talk of deflating economies, and global prices for goods and services, also took the wind out of gold's sails.

John Hathaway, a New York City-based mutual fund manager, has become one of the metal's strongest Wall Street believers in an explosive rally for bullion's price.

"The title of my talk is Gold for Dummies," Hathaway of Tocqueville Gold Fund (TGLDX: news, chart, profile) told me about his appearance next week at the San Francisco gathering. "The premise is that the bull market in gold is nearly 5 years old but a well kept secret thanks to the financial media."

Hathaway believes gold will rise sharply as the Federal Reserve dilutes the value of America's currency, the dollar, in a bid to alter deflationary expectations and boost U.S. exports. He also sees an upcoming exchange-traded fund for gold, Equity Gold Trust (GLD: news, chart, profile), adding hundreds of tonnes of demand for the metal when it lists this summer on the New York Stock Exchange.

The upcoming listing of the exchange-traded fund, a first for a commodity in North America, has hedge funds (and individual investors) licking their chops as they anticipate a flood of interest for owning gold directly through a NYSE-traded stock. See: Paper gold to spark investment demand.

The first gold trust to list as an exchange-traded fund, Gold Bullion Ltd. (AU:GOLD: news, chart, profile), trades in Australia and has sold almost 100,000 ounces of the metal since its listing earlier in the spring. Exchange-traded funds, like the Nasdaq 100's QQQs, change hands in real time and represent a basket of holdings. In the case of the new wave of commodity ETFs, those holdings are physical gold held in sanctioned vaults.

Institutions are bringing other paper-gold products to market as well. One of them, Central Gold Trust, would trade in Canada as a closed-end fund -- at a premium or discount to its gold holdings. "Investors pay a premium to purchase gold, typically receive a discount upon disposition, have delivery and storage charges as well as potentially facing assay charges if selling physical bars," says J. C. Stefan Spicer, the Canadian executive who would help to manage Central Gold Trust.

Central Gold Trust would resemble Central Fund of Canada (CEF: news, chart, profile), a closed-end gold and silver fund that trades in Toronto and on the American Stock Exchange. Spicer is the chief executive of Central Fund of Canada.

For the hedge funds that have been taking early positions in gold mining companies, the search these days is for companies whose stocks could triple and quadruple if gold's price were to rise $60 from its current level.

Some of those companies, such as Crystallex International (KRY: news, chart, profile) and Canyon Resources (CAU: news, chart, profile), face uphill battles in Venezuela and Montana, respectively, where they are vying to mine rich bullion deposits that could improve their financial results dramatically.

Others, such as Wheaton River, which mines gold and silver largely in Mexico, are steadily raising their production levels. And still others, such as Nevsun Resources (CA:NSU: news, chart, profile), are trying to convince investors their exploration efforts in far-flung corners of the globe, in Nevsun's case in Mali and Eritrea, Africa, will bear fruit.

"Nevsun's Bisha project, in Eritrea, has delivered results to rival any high-grade project currently under way in the world," says Robert Bishop of Gold Mining Stock Report. Nevsun was the world's biggest gold-stock gainer in 2002 but has seen its shares stall on the Toronto Stock Exchange after one of its geologists was murdered in April.

For more on the San Francisco Gold Forum, see www.denvergold.org.

For more on the small-cap stock rally and the latest additions to The Calandra Report, see: The Calandra Report. Thom Calandra's StockWatch is CBS MarketWatch's flagship column. The regular report is in its eighth year at CBS.MarketWatch.com. Thom Calandra is also author of subscription service The Calandra Report.

More THOM CALANDRA'S STOCKWATCH •Crystallex, gold miner, to see light of day 1:19pm ET 06/13/03 •Crystallex executive says shares are cheap 2:15pm ET 06/10/03 •Small-cap rally to get boost from liquidity, low costs 12:07pm ET 06/09/03 •Price swings have investors itching to buy small-caps 11:13am ET 06/04/03 •Thom Calandra: Events and why they move stocks 12:01am ET 06/02/03

Latest Industry News   Get Alerted on News in this Industry •Canadian stocks close lower on disappointing data 4:52pm ET 06/13/03 •Gold closes up on the session, but down for the week 4:13pm ET 06/13/03 •Insider trading, fragrance industry, gold and more 1:46pm ET 06/13/03 •Crystallex, gold miner, to see light of day 1:19pm ET 06/13/03 •Mining and coal stocks on top of this week's heap 12:19pm ET 06/13/03 Get the Hulbert Financial Digest Newsletter Honor Roll 2002. Learn which investment newsletters earned an above-average grade in performance during both up and down financial markets with The Hulbert Financial Digest Newsletter Honor Roll 2002.   Get your copy today! Sponsored Links List your site here Over 60? Cut Taxes and Have More Income - Free newsletter on cutting taxes, picking mutual funds, cutting cost of long term care insurance, stock selection, IRA distributions and more for those ready to retire or already retired. Consumer Credit Counseling Service - Non-profit Christian agency can help stop late and overlimit fees, reduce interest and you only have to pay to one place. No collateral needed, you cannot borrow your way out of debt. Personal Budgeting System That Works - This revolutionary personal budgeting system will help you manage your current spending and save more money for investments, retirement or whatever matters most. Free starter pack and free trial. Regain Control of Your Credit and Debt - Looking for solutions to get out of debt? The Credit Counseling Foundation is a Non-Profit 501(C)(3) agency that will drastically reduce your debt! Find out more with a free debt analysis!

Reuters, 06.06.03, 9:41 AM ET NEW YORK, June 6 (Reuters) - NYMEX crude futures were called to move higher on Friday as oil ministers from Saudi Arabia, Venezuela and Mexico unexpectedly meet in Madrid to discuss oil production policy prior to OPEC's June 11 meeting. News of the meeting on Thursday helped boost prices and offset the effect of Wednesday's bearish U.S. inventory report that showed U.S. crude and gasoline supplies rising last week. NYMEX July crude was called to open 15 cents to 25 cents higher after ending ACCESS trade up 19 cents at $30.93 a barrel, trading $30.74 to $31.00. The ACCESS high duplicated the high trade from Wednesday. "We're seeing continued strength and we should take a look above $31 and see what happens," said a New York broker. "There should be some heavy resistance at $31.30." Traders will watch any rally that challenges the double top of the $31.25 April 21 high and the $31.30/$31.32 highs reached on March 31 and April 1. Technical analysts on Friday expect nearby resistance for NYMEX July crude at $31.25, with support slated at $29.65 [nL06604353]. In London at 9:36 a.m. EDT (13:36 GMT), the International Petroleum Exchange (IPE) July crude contract traded 21 cents higher at $27.65 a barrel. The one-day talks [nL06566136] in Madrid, set for 1600 GMT, will have Saudi Arabia's Ali al-Naimi, Venezuela's Rafael Ramirez and Mexico's Ernesto Martens, representing the three countries that were architects of drastic oil curbs that helped revive depressed prices in 1998 and 1999. OPEC has been trying to encourage Mexico, and its other major producer rivals Russia and Norway, to remain aligned with OPEC on output policy to prop up prices when they fall. The return of Iraq exports will also be on OPEC's agenda. The U.S. advisor to the Iraqi oil ministry said on Friday he expected exports to reach about one million barrels per day (bpd) by the end of June [nL06557069]. However, analysts said on Thursday recent high prices could have make OPEC reluctant to cut output [nL04178763]. Iraqi oil exports were poised to return to the market as the State Oil Marketing Organization announced a tender on Thursday to sell crude from storage, lifting in the second half of June. But a return to prewar production levels must overcome the post-war looting that has damaged the infrastructure. Products futures, weakened by rising inventories earlier in the week, are still very sensitive to any refinery glitches, even with refiners inhaling crude oil at record rates, using 98 percent of capacity in the week to May 30, according to government data. NYMEX July gasoline was called to open 0.25 cent to 0.35 cent higher after ending ACCESS trade up 0.36 cent at 88.88 cents a gallon. Nearby resistance is expected by chart watchers at 89.60 cents. Support should appear at 86.74 cents, a key resistance point pierced on Thursday. NYMEX July heating oil futures were called to open 0.20 cent to 0.30 cent higher after ending ACCESS trade up 0.32 cent at 77.55 cents a gallon. Resistance is expected at 77.83 cents, with support due at 75.11 cents. Copyright 2003, Reuters News Service

<a href=slate.msn.com>slate.msn.com By Daniel Gross Posted Friday, May 23, 2003, at 3:15 PM PT

Last week, Kristin J. Forbes, a young Massachusetts Institute of Technology economist, was named to President Bush's Council of Economic Advisers. Professor Forbes has an impressive résumé, but one can't help but think that one article in particular helped put her over the top.

In her most prominent journal article, which appeared in the American Economic Review in 2000, Forbes concluded that "in the short and medium term, an increase in a country's level of income inequality has a significant positive relationship with subsequent economic growth." In other words, after employing various forms of regression analysis and crunching scads of data, Forbes presciently affirmed what President Bush and the Republicans who control Congress have long implied but never said: If you want to put a jolt into the economy, fix fiscal policy so that it widens the gap between rich and poor. By reducing marginal rates and cutting taxes on dividends, that's precisely what the most recent gimmick-laden tax bill will likely do.

But Forbes—who appears to be no relation to the better-known Forbes family of income inequality advocates—is an academic economist, not a think-tank jockey. Her argument, although easily caricatured, has less to do with partisan politics and more to do with an ongoing academic debate about the relationship between economic inequality and growth.

In the middle part of the 20th century, the prevailing presumption was that income inequality was good for growth. Putting more money in the hands of the rich, who saved more, would provide economies with the means to finance investment. Under the schemas of influential economists such as Keynes contemporary Nicholas Kaldor and Nobel Memorial Prize-winner Simon Kuznets, governments faced a tough choice in devising fiscal policy. They could either spread income out more evenly, which would harm growth, or stimulate greater growth by fostering greater inequality.

In recent decades, the accumulated knowledge about how economies performed in the post-World War II era started to undermine this view. Countries in East Asia—Japan, Korea, Singapore, etc.—charted impressive growth over long periods, even as the distribution of wealth remained relatively equal. And regions in which income inequality was both massive and stubbornly persistent—i.e., Africa and Latin America—were perennial laggards. Indeed, the very structures that calcified income inequality—dynastic landholding, corrupt governments, lack of investment in public education—seemed to militate against growth.

In the 1990s, a wave of empirical research found that, in fact, countries with high inequality over a long period of time have low growth. This paper by Harvard professors Alberto Alesina and Dani Rodrik is a good example of such work. When there's a lot of inequality, the median voter will be poor. As a result, populist backlash will pressure the government to enact redistributionist policies and tax capital, thus hurting investment and stunting growth. (See under: Venezuela.)

Forbes' article uses new data and different methodology to poke (tentatively) at this conventional wisdom. Alesina and Rodrik—and many other researchers in the 1990s—took a "cross-country" approach, examining the relative economic performances of high- and low-inequality countries over time. But Forbes chose instead to look at the performances of individual countries over time and investigate whether there was a correlation between periods of higher or lower inequality on the one hand and periods of higher or lower growth on the other. Of course, it's possible that the relationship she detects between growth and higher inequality is more coincidental than causal. As New York University economist Bill Easterly put it: "It's more likely that what she was finding was that there are long waves or business cycle waves—maybe during booms, inequality rises, and during recessions, inequality falls."

Forbes—whose dissertation committee included the avowedly anti-Bush economist Paul Krugman—says she isn't certain about the meaning of her results. She notes that "the relationship is far from resolved" and that it is "too soon" to reach "any definitive policy conclusions." Unfortunately, the Bush administration and its Republican allies suffer no such compunctions.

Daniel Gross (www.danielgross.net) writes Slate's "Moneybox" column. You can e-mail him at moneybox@slate.com

Bush's new economist has a curious prescription.

What did you think of this article? Join the Fray, our reader discussion forum

Remarks from the Fray: …In Dr. Forbes' article, she writes that "it is possible that the strong positive relationship between inequality and growth could diminish (or even reverse) over significantly longer periods [than 10 years]." It's worth noting that income inequality in the U.S. has been increasing (as I recall) for significantly longer than the 10 year threshold that Dr. Forbes identified. As a noneconomist, might I ask if it would be consistent with Dr. Forbes' article for the U.S. economy to be presently slumping because we have had a prolonged correlation between inequality and growth, leading to the diminution or reversal of the relationship between growth and inequality that she could not rule out? At the very least, looking at the conclusion of her article, it seems that Dr. Forbes recognizes that absolute income inequality is not an absolute good. If only there were some sign that the Bush people are aware of that as well. --Dameffy

…Kuznets did NOT describe inequality as a cause of growth but as a temporary consequence of economic growth. As rapid growth begins, lead sectors take off, and the income of capitalists (and even some workers) in those sectors grows faster than other incomes; hence inequality grows. As growth balances (lots of reasons and possibilities), the income distribution becomes more equal. So the "Kuznets Curve" describes an inverted-U relationship between growth (cause) and inequality (effect). After an economy reaches some threshold income--low enough that the advanced industrial countries had passed it by the early part of the 20th century--rising tide raises all boats. Kuznets did not think that inequality causes growth, he did not assert a policy trade-off between equality and growth trade-off, nor did he advocate inequality. In summary, Kuznets held that growth at first increases inequality and then decreases it… --M-westernmass

…This is a particularly tricky debate because it crystallizes what I think of as the four main groups in American Politics: Liberals, conservatives, libertarians and authoritarians. Liberals and authoritarians form one group for financial matters with conservatives and libertarians on the other side….Ultimately, freedom demands of us that we go out and provide goods and services for others which they value in order to survive. We all go out, work and are rewarded according to how well we judge and satisfy the desires and appetites of others. A person is only as valuable as he or she is difficult to replace. I spend my resources (time, money and attention) attempting to secure for myself the best living I can. Doing so involves providing goods and services to others. My employer values one hour of my time more than a certain wage and I value that wage more than the hour of my time….With a system of redistribution in place, the transfer beneficiaries do not have to work as hard as before to attain their previous material status. Additionally, the precedent has been set that one may simply vote for a better standard of living instead of having to go out and take the thousands of tedious actions necessary to achieve that standard on their own. Further, dependency breeds resentment. Class warfare flourishes, bogeymen are continually set up and knocked down, profit goes from being the best beacon of doing something right for others to being a dirty word, victimhood loses its stigma and becomes a profession, and children are raised with few of the skills necessary to fend for themselves without increasingly massive handouts. Every direct transfer program, environmental standard, OSHA regulation and labor law that we have exists only because certain people (rich or poor) were uncomfortable with the strength of their positions in relationships with others and decided to diminish the power of parties they perceived to be adverse by limiting their freedom. The rich have now poked out the eye of the poor and vice versa and none of us is better for it. Redistribution in either direction retards individuality, kills dignity, discourages productive behavior, encourages further theft and kills freedom. --NickPasse

I am no fan of the policies of the Bush administration, nor a believer in its good motives in general (sample my other posts if you don't believe me). But I have to disagree with Daniel Gross's theory that Dubya is stuffing his Council of Economic Advisors with intellectual defenders of his policies. Kristin Forbes does look like an odd appointment at first glance. She is only five years out of graduate school, and has a single publication in a blue-ribbon economics journal. However, she already has good policy experience, including a stint as assistant Deputy Secretary at Treasury last year (and earlier experience at the World Bank). It seems more like an internal promotion than a fresh appointment to me. More importantly, look at some of the other appointments. The nominee as Chairman is Greg Mankiw, an adherent of the New Keynesian school of macroeconomics, which is a rival of the Chicago school in its advocacy of pro-active macro-management and government interventions in the economy. The same can be said of another appointee, Harvey Rosen of Princeton. If Bush wanted well-credentialed conservative economists, there are much better choices: Bob Lucas (Chicago), Tom Sargent (NYU), Robert Barro (Harvard), to name a few. (Here [post.economics.harvard.edu] is a sample of Mankiw's views on monetary policy. But wait, in this [post.economics.harvard.edu] one, he argues that social security funds should be invested in the stock market; read the abstract. Hmmm...!!) So I think Gross is a little off the mark. Isn't the Council of Economic Advisors a somewhat ceremonial body, anyway? The real policy making power lies with the Treasury. And, surprise surprise, you will find only ex-CEOs there. --Sissyfuss1

…Bush has just moved his CEA team two blocks further away from the White House, a detail that in Washington terms means a serious reduction in rank. Our of sight, out of mind, Bush may now proceed with screwing up the biggest economy in the world without pesky details rubbing up against his shoddy work. In the mean time, the mainstream economic community has spoken: In a recent joint statement, 10 Nobel laureates in economics and 450 other economists said there is wide agreement that the purpose of President Bush's tax plan is permanent change in the tax structure and not the creation of jobs and growth in the near-term. The permanent dividend tax cut, in particular, is not credible as "short-term stimulus." Job losses are currently occurring at a 1.5 million per year clip, showing that the long neglected economy now needs a direct and immediate stimulus. Bush claims that GDP growth will be highest in the first two years (it has to, because GDP is now an unsustainable negative). This implies that they will decline in 2005, 2006 and 2007 relative to what we would expect if no plan were implemented. Other forecasters have reached similar conclusions. An analysis by Mark Zandi, president of Economy.com and definitely not a liberal, shows a positive impact over the first two years (a dismal 0.8 percent higher GDP over two years) but an annual GDP decline of 0.25 percent thereafter. Consequently, GDP is lower by 1.0 percent in 2013 than it would be with no Bush package. The result is a loss of 750,000 jobs by 2013. We pay for that by bankrupting the Treasury, billing our children, delivering decidedly less public services, and increasing tax unfairness, radically increasing poverty in America. --GaryWmoderate

slate.msn.com By Daniel Gross Posted Friday, May 23, 2003, at 3:15 PM PT

Last week, Kristin J. Forbes, a young Massachusetts Institute of Technology economist, was named to President Bush's Council of Economic Advisers. Professor Forbes has an impressive résumé, but one can't help but think that one article in particular helped put her over the top.

In her most prominent journal article, which appeared in the American Economic Review in 2000, Forbes concluded that "in the short and medium term, an increase in a country's level of income inequality has a significant positive relationship with subsequent economic growth." In other words, after employing various forms of regression analysis and crunching scads of data, Forbes presciently affirmed what President Bush and the Republicans who control Congress have long implied but never said: If you want to put a jolt into the economy, fix fiscal policy so that it widens the gap between rich and poor. By reducing marginal rates and cutting taxes on dividends, that's precisely what the most recent gimmick-laden tax bill will likely do.

But Forbes—who appears to be no relation to the better-known Forbes family of income inequality advocates—is an academic economist, not a think-tank jockey. Her argument, although easily caricatured, has less to do with partisan politics and more to do with an ongoing academic debate about the relationship between economic inequality and growth.

In the middle part of the 20th century, the prevailing presumption was that income inequality was good for growth. Putting more money in the hands of the rich, who saved more, would provide economies with the means to finance investment. Under the schemas of influential economists such as Keynes contemporary Nicholas Kaldor and Nobel Memorial Prize-winner Simon Kuznets, governments faced a tough choice in devising fiscal policy. They could either spread income out more evenly, which would harm growth, or stimulate greater growth by fostering greater inequality.

In recent decades, the accumulated knowledge about how economies performed in the post-World War II era started to undermine this view. Countries in East Asia—Japan, Korea, Singapore, etc.—charted impressive growth over long periods, even as the distribution of wealth remained relatively equal. And regions in which income inequality was both massive and stubbornly persistent—i.e., Africa and Latin America—were perennial laggards. Indeed, the very structures that calcified income inequality—dynastic landholding, corrupt governments, lack of investment in public education—seemed to militate against growth.

In the 1990s, a wave of empirical research found that, in fact, countries with high inequality over a long period of time have low growth. This paper by Harvard professors Alberto Alesina and Dani Rodrik is a good example of such work. When there's a lot of inequality, the median voter will be poor. As a result, populist backlash will pressure the government to enact redistributionist policies and tax capital, thus hurting investment and stunting growth. (See under: Venezuela.)

Forbes' article uses new data and different methodology to poke (tentatively) at this conventional wisdom. Alesina and Rodrik—and many other researchers in the 1990s—took a "cross-country" approach, examining the relative economic performances of high- and low-inequality countries over time. But Forbes chose instead to look at the performances of individual countries over time and investigate whether there was a correlation between periods of higher or lower inequality on the one hand and periods of higher or lower growth on the other. Of course, it's possible that the relationship she detects between growth and higher inequality is more coincidental than causal. As New York University economist Bill Easterly put it: "It's more likely that what she was finding was that there are long waves or business cycle waves—maybe during booms, inequality rises, and during recessions, inequality falls."

Forbes—whose dissertation committee included the avowedly anti-Bush economist Paul Krugman—says she isn't certain about the meaning of her results. She notes that "the relationship is far from resolved" and that it is "too soon" to reach "any definitive policy conclusions." Unfortunately, the Bush administration and its Republican allies suffer no such compunctions.