Can Inequality be Good?

Can inequality, as it is called, be sometimes a good thing?

Authors weigh in on the question, which is agreed amongst all economists that there are circumstances where economic growth raises inequality.  The question however remains is this a stable situation as the growth spurt stabilizes or it is a permanent shift?  They write:

If the American economy were like the Indian caste system, where there is no social mobility, those worried about inequality would have a point. But in America, income inequality simply means that for those who work hard, there is a way out of poverty.
If the American economy were like the Indian caste system, where there is no social mobility, those worried about inequality would have a point. But in America, income inequality simply means that for those who work hard, there is a way out of poverty.
Results suggest 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. This relationship is highly robust across samples, variable definitions, and model specifications.

 

For a highly dynamic economy it can be argues that the income distribution will also be dynamic in its mobility and its distribution.

 

Is income inequality a good thing?

 

Income Inequality is Good for Everyone Envy, not inequality, is threatening the American dream

By Foster Friess

 

Jackson Hole where I live has a lot of wealthy people. Their incomes have been hit pretty hard since the 2008 meltdown, and many have had to sell homes and readjust life styles. As a result, income inequality has been reduced.
 
The Wall Street Occupiers and their sympathizers—including President Obama in a campaign speech in Kansas on Monday—tell us that income equality is a good thing.

 

But while the incomes of the wealthy in Jackson and Teton County have decreased, so has the number of jobs. According to some accounts, 3,000 people are out of work. Because when the rich get poorer, so do the poor.
 
Margaret Thatcher, in her last speech from the House of Commons floor as British Prime Minister, zeroed in on the true view of those who complain about income inequality: “So long as the [income] gap is smaller, they would rather have the poor poorer.” She understood that those concerned about “income inequality” are preoccupied with an envy of the rich rather than a desire for the poor to be less poor.

 

If the American economy were like the Indian caste system, where there is no social mobility, those worried about inequality would have a point. But in America, income inequality simply means that for those who work hard, there is a way out of poverty.
 
The Ruling Political Elite would prefer more income equality, where the likes of Steve Jobs could never have risen to the top to generate wealth for themselves and others—and where everyone has to rely on government handouts rather than self-enterprise.
These "narrow the gap" advocates present a chart with an escalating line illustrating the rich getting richer and a second flat line below it postulating that the poor have stayed constantly poor.
 
But the people in that lower group are constantly changing! In 1964, when I came out of the Army with basic assets of $800 of accumulated leave pay, I was in that bottom group.  Steve Jobs  was in that group, receiving free food from the Hare Krishna  folks. But we worked our way out of it!
 
This ability to succeed is the mainspring of the American dream. Those who have lost their jobs in Jackson Hole would be better off if the income of some in Jackson suddenly soared to higher levels.  With more wealth (and, yes, even a wider income disparity), there would be more money for everyone—retailers, plumbers, carpenters, waitresses, ski instructors—because wealth creates jobs.

 

My hard-working parents focused on sustaining our family rather than worrying about the "income gap." My dad bought and sold cattle, and my mom, who dropped out of school in eighth grade to pick cotton to help her single mom and eight siblings, canned fruit, froze vegetables, and butchered chickens in our basement so we wouldn't have to pay "those expensive store-bought" prices."   Franklin Delanor Roosevelt, in a 1933 radio address, said, "We cannot read the history of our rise and development as a Nation, without reckoning with the place the Bible has occupied in shaping the advances of the Republic....Where we have been truest and most consistent in obeying its precepts we have attained the greatest measure of contentment and prosperity." 
 
So in that "pre-entitlement" era, before the Woodstock crowd launched its drug and sexual revolution and became the "Me" generation, all of us knew that these centuries old Jewish  scriptures taught that envy was a sin.
 
With our wealth we are to "be our brother's keeper," meet the needs of the poor, and to be a blessing to all those God puts in our path. The Good Book exhorts us to share in people's sorrows as well as joys. In those days we honored the productive, the successful, and, yes, the rich. And we believed that, in America, anyone who worked hard could become one of the rich.  Merry Christmas, Happy New Year, and go bust your butt to widen the gap!!
 
Watch Margaret Thatcher defend income inequality at right (2:34).

 

 

 

 

Relationship Between Inequality and Growth 

 

A Reassessment of the Relationship Between Inequality and Growth    Link     By KRISTIN J. FORBES*

 

Results suggest 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. This relationship is highly robust across samples, variable definitions, and model specifications.

 

 

Margaret Thatcher said: “So long as the [income] gap is smaller, they would rather have the poor poorer.”