Economics - General

Is more income equality a good thing?

This is a normative question.  Some people would prefer a society with more income re-distribution.  More income re-distribution is “fairer” in the sense that fewer people would suffer from a low standard of living.  Most societies (and individual humans) place at least a some value in insuring that the worst off amongst us have some resources at their disposal.   Others would argue that less income redistribution is “fairer” because people should earn what they produce.   More income redistribution decreases incentives to work and become an entrepreneur since hard work is rewarded less in societies with more redistribution.

Both approaches could be argued for under John Rawl’s veil of ignorance.  Basically, if you didn’t know if you were rich or poor, smart or dumb, healthy or sick, how would you structure a society. Even under this veil of ignorance, there certainly can be arguments made on both sides.

A relative but positive (rather than normative) question is what are the factors that lead the the largest increases in income inequality.  An interesting article in The Atlantic by Walter Scheidel answers the question.

Throughout history, only massive, violent shocks that upended the established order proved powerful enough to flatten disparities in income and wealth. They appeared in four different guises: mass-mobilization warfare, violent and transformative revolutions, state collapse, and catastrophic epidemics. Hundreds of millions perished in their wake, and by the time these crises had passed, the gap between rich and poor had shrunk.

These can’t be the only solutions, right? Aren’t there more enlightened ways to redistribute income?

History offers little comfort. Land reform often foundered or was subverted by the propertied. Successful programs that managed to parcel out land to the poor and made sure they kept it owed much to the threat or exercise of violence…Even the most progressive welfare states of continental Europe are now struggling to compensate for the widening income disparities that exist before taxes and transfers. In the coming decades, the dramatic aging of rich countries and the pressures of immigration on social solidarity will make it ever harder to ensure a fairly equitable distribution of net incomes.

This post does not mean to say that increasing in income or wealth inequality is a bad (or good) thing, nor that increasing income inequality is hopeless.  At the same time, history does teach us that massive changes in income inequality often occur due to inauspicious sources.

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