Does Wealth Inequality Matter - Essay Example

Does wealth inequality matter? affiliation Introduction Wealth distribution and inequality matters most not because it stokes the flames leading to envy, but because it drives debilitating dissension and creates instability in the society. However, the best means to address the political problem of envy is undoing the system of the upper-class patronage that tends to keep all but the most societal incompetent elites to be super wealthy. Those systems do turn those who are envy into a perverse alliance with the most prideful of all (Keister & Moller 2000). (Johnston 2011): percentile of household-share of net worth Sustained growth is vital for the reduction of poverty over the long run. The rapid growth and development that has been witnessed in several parts of the world over the last years has led to a significant decrease in the levels of poverty. Moreover, in general, led to a higher increase in the levels of per capita income and this translates to increase in the income of the poor in a proportionate amount. The global crisis witnessed recently together with the impact it has had on the economic activities, number of jobs and the poor, has just spurred a renewed focus on the factors driving growth. These factors include the possible link between income inequality, sustainability of growth and crises (Castaeda et al. 2003). With GDP, the countries that have high per capita income do not occasionally have good quality of life. There are several countries in the developing world whose gross domestic product is high such as Sudan and Eritrea but the quality of life in the countries is still below the level of a “good” life. Therefore, GDP cannot be used as a measure of how prosperous people are. Nonetheless, rapid increase in the gross domestic product has been associated with decreasing poverty index. Within several countries, indicators of wealth inequalities such as Gini coefficient reveal less about people who have benefited and lost from the trends. Household situations provide a clear and complete view and show that in several countries, gains in disposable incomes have fallen short of GDP increase. These cases have been particularly for the households, which are poor. The middle-income households have fared better but though they are also lagging behind the growth of gross domestic product. Fig. 2. (Lollivier & Verger 1999): Relationship between GDP and Gini coefficient Does wealth inequality matter? General literature on Wealth inequality It is observed that globalisation is creating pressures that ultimately increase inequality levels in the contemporary society. The proponents of globalisation have hailed the rapid growth of the economy. In addition, indeed, after several decades of dramatic improvement and rapid economic growth, some of the countries that were seen to be poor have been able to move millions of its population out of poverty (Roemer 2011, pp.76-98). They have also been able to shift a huge portion of the people around the globe out of the poorest parts of the world distribution of income so that inequalities among individual has declined in regardless of the country. This does not mean introduction of globalisation has come to level the field for every person. The gap is still increasing in the average income countries that are in Europe, North America and Australasia and the poorest countries most of them in Africa. In some countries, the wealth distribution and income inequality have not experienced any change. Therefore, it would be exaggeration to claim that increasing inequality within countries has been the norm from time immemorial nor will it make sense in blaming the impact of globalisation because inequalities levels are increasing (De Nardi 2004). Fig.3. (Chakraborti & Patriarca 2008): Income inequality in emerging countries The gap between the poor and the rich has tremendously grown even in the countries within Europe. The Greeks were the most affected during the global financial crisis that led several poor people losing their jobs, hence, widening the gap even further. Some of the European countries such as Sweden, Denmark, and Germany, which have a ten percent average income of the rich people compared to the ten percent of the poorest people, has increased. Germany is known for its low inequality level but that does not mean that the economic crisis did not affect it. The economic crisis led to large-scale retrenchment of workers thus contributing to huge numbers of people getting jobless. Despite the wealth seen in the European Union (EU), poverty is still high among the member states. One out of seven people in Europe is at risk of becoming poor according to the statistics released by the European Union body. This increase in poverty level has been associated with social exclusion. People are pushed towards the edge of the society limiting their accessibility to opportunities and resources within the region (Tubeuf & Jusot 2011). United States of America has achieved the distinction of becoming the leading country with the highest income inequality level among all the developed countries. While there is no single digit that can make a depiction of all aspects of inequality in the society, matters have become complicated in every sector and dimension. In that, more money is going to the top whereas several people are in poverty at the bottom. The middle-class population, who have remained the core strength of the society, has seen its income stagnating for long time (Cagetti & De Nardi 2008). Fig.4. (Buiter 2010): Decomposing the top decile US income share Earlier research and analysis recognise the complex linkages among distribution of income, policies, and growth to counter the impact of inequality. In this case, the question remains on whether growth can be sustained in the face of a highly uneven distribution of income. In addition, whether having less inequality can help increase the growth duration. It has been noted that several important things are changing such as the ratio of wealth to income in countries that are rich. In these countries, inequality in wealth may be key to the future. The importance of distribution of wealth gets down to capital income. Therefore, suggesting that an increase in wealth inequality begets more wealth inequality is not only assuming but also making a conclusion on the issue (Bardhan et al. 2007, pp.1843–1874; Shennan 2011, pp.918–926). The growing gap between the rich people and the poor population is raising many concerns in the society. The question remains on how bad is wealth inequality. There is a lot of press about this gap. Generally, this gap seems to be presented as a bad thing (Wade 2011, pp.54-75). However, the question remains whether it is bad for the rich people to earn their money using honest means. A society without rich people would be in trouble, and the gap must be put in check. It is true that without motives of profits, the most rational idea for business people would endorse is to sit back at home and relax all day. In addition, history has shown us that any effort attempted by the government in trying to reduce and equalise the wealth distribution in the society or manage economies has always been backfiring. Fig.5. Frick & Grabka 2009, pp.62–73: Top wealth Textbook economics has for long been describing tradeoffs between equality and growth. Increasing levels of inequality seems to be a natural outcome of developments early stages. In addition, chances are that increase in inequality is likely to enhance growth through income concentration among the rich population, who save a lot and invest more. Moreover, inequalities are a reflection of a system that rewards only those who are working hard, those who are innovative and risk taking. This ultimately ensures increased output and productivity, and thus higher average income and growth rates (Bardhan et al. 2000, pp.541–603). For economists, inequality in the society has typically represented at worst evil necessary and at best, a price that is reasonable to pay for growth. While inequality may be constructive in countries that have developed, in the sense of motivating people to be hard working, innovative and becoming risk takers, in countries that are developing chances are that it is destructive. In a society where opportunities are equal, inequality of income would be constructive wholly since there would be lifetime mobility and international mobility. Inequality in the distribution of wealth is not a new phenomenon. There is evidence that the gap between the rich and the poor has been widening from the past few decades in countries including the United States. Today, when such factors as modern healthcare and convenience electronic devices, an average person enjoys living standard on par with some of the richest people a century ago. Therefore, the increasing income gap and wealth inequity has not seemed at all to have hurt any progress (Savani & Rattan 2012, pp.796–804). In America, the growing gap between the classes of people, the rich and the poor, is a defining feature in the modern century. The income inequality has widened by a single measure during the administration of president Obama. The president is looking to solve the problems of unequal distribution of wealth in the United States through the introduction of affordable healthcare bill for all. He believes that the rich are able to cater for the poor through giving tax to the government so that every individual a live a happy life without necessarily failing to access the necessities in life such as food and healthcare. In America, the poorest families do value healthcare most and when this is provided to them at a cheaper costs then wealth will have been distributed throughout the states (Borgerhoff Mulder et al. 2009, pp.682–688). Fig.6. Borgerhoff Mulder et al. 2009, pp.682–688: The affordable care act of Americans Sources of inequality Starting point- the situation that individuals are born into, if one is born in a family having assets and wealth, he, or she gets a head start as opposed to the individual born in a family where there are no assets and wealth. That is particularly vital in Great Britain, as long held land ownership inequalities and networks of inherited wealth form a base that helps in perpetuating a degree of inequality (Wade 2012, pp.21-50). Early life opportunities- our individual childhood helps in amplifying those initial inequalities that individuals are born into. Those families having wealth are in a position to pay for good education for their children thus opening odors of opportunities to all kinds of chances. Britain has poor social mobility in that those individuals who are born in poor families are more likely to remain in the same status. On the other hand, the United States also shares the same scenario, it has a good reputation as the land of opportunities, and this seems to be more of cultural mythology rather than reality. Global influences- globalisation has been seen a great phenomenon that has helped in bringing lots of advantages, on the other hand, it has also been a driving force behind inequality. Liberalization of economic trends has played a role in increasing the inequality gap in almost every state where it has been pursued (Angle 2006, pp.388–414). National economy- in addition to the forces operating globally, individual economies are also known to be affecting the equality in wealth distribution. Tax and policy- the regime of tax in any state can be either regressive or progressive, redistributing wealth around the global economy. When talking about sharing of wealth, taxation is one of the things individuals think of first, but it is better to prevent any aspect of inequality in the society than redistributing wealth afterwards. On the other hand, a system of tax that is progressive aims at moving the society forward and helps in preventing inequality from being passed from one generation to the other (Western & Keister 2001, p.335). Why care about wealth inequality? This remains an important question as to whether there exist moral grounds for caring about inequalities in wealth as well as income, which are derived purely from the differences existing in the levels of skills as opposed to the inequalities derived from the impediments preventing people from taking advantage of their skills to improve their lives. In most societies, inequalities are seen as an equal presentation of opportunities to the citizens. In this case, the rich population continue benefiting from the resources available in the society whereas the poor continue being poorer (Lustig et al. 2013, pp.38–94). Fig.7. Frick & Grabka 2009, pp.62–73: Distribution of wealth by class In a society where opportunities are equal for all, it is unproblematic for individuals to exploit their skills. The question remains on whether there exists a moral ground to criticise in an attempt to repair inequalities in wealth that is purely derived from possessions of different levels of skills. This is the clearest way of addressing the concerns that are commonly raised from “relative poverty” and not absolute poverty. On the other hand, it can be suggested that there exists a strong moral ground to reject efforts to redistribute wealth in order to reduce relative poverty. Inequality in the society is mainly because of policies governing what we should and should not do. The economic laws are universal; the fact that in some of the countries there is less inequality and much equality of opportunities whereas in others inequality is not increasing but rather decreasing because they have different economic laws. Every aspect of our legal, economic, and social framework helps in shaping inequality. Finally, the idea that people should not get worried about inequality should be discredited, if it were to be true, an average individual in the society today would be doing very well (Western & Keister 2001, p.335). Wealth inequality real concern Among the most important challenges in the economy as a result of unequal distribution of wealth facing most developing countries as well as countries whose economies have advanced today, are the increasing levels of inequalities in the outcomes of economies. In the case of the United States, its income distribution, wages, and wealth are more dispersed than ever before (Castaneda et al. 2003, pp.818–857). Fig.8. Frick & Grabka 2009, pp.62–73: Distribution of wealth by class For different observers, this fact has different implications for the society and the country at large. Several critics are suggesting that inequalities violate basic fundamental fairness in the society, particularly when considering the divergence of growth productivity and median compensation. Such trends are evidence of the working population who no longer get their fair share of the growth that they are working hard to help generate. In addition, it has been noted that inequalities in the society serves as a wedge between the living standards and growth. Therefore, it funnels income largely to those individuals who are on top of the scale (the rich). Thus, making it even more difficult at any given economic level of growth for the standards of living to grow as they have been in more times that are equitable or for the levels of poverty to decrease during the expansion of the business cycle (Norton & Ariely 2011, pp.9–12). On the other hand, the high levels of wealth inequalities are seen to be eroding the mobility as well as the opportunities for those individuals whose standards of living and the well-being of their economy are affected negatively by the dynamics of the wedge. This is a fundamental critique because, in America, it is widely held that while we do not aim at equal outcomes in the economy, we tend to believe strongly in equal opportunities. If all the inequalities were to threaten the opportunities of those who have, this would have presented a significant violation of a basic American tenet. In this regard, the high levels of inequality being experienced in today’s society require a response policy that will create a more equitable and an economy that is inclusive. It is important to have full employment. And given the persistence seen in weak labor markets, achievement of full employment may require job creation in the public sector either directly through projects of public infrastructure or indirectly through public subsidies mainly for the private jobs (Spilerman 2000, pp.497–524). Research indicates an inverse relationship between inequality and social cohesion in the society. In societies where equality is observed and practiced, people are more likely to offer trust, mutual sympathy, and social connectedness to each other. This suggests a greater involvement of the community leading to a decreasing figure in the cases of homicide. Hence, it can be said that community and equality are mutually reinforcing. If one factor is weak, then the relationship is threatened. In a case of unequal distribution of wealth in the society, people treat each other with distrust, and the cohesion is affected. The society pays a higher price for having high levels of inequality, in terms of its nature and democracy. A society, which is divided, is very different. This society does not function by any means. The democracy of the people in the society is always in jeopardy of being undermined by inequality in the economy inevitably is translated into political inequality. One of the greatest ways the society pays dearly for the extremes to which the level of inequality has grown in both outcomes and opportunities is the weaker economy. Unequal distribution of resources and inequality leads to a decrease in economic growth and instability in the country (Piketty & Saez 2014, pp.838–843). In the society, the rates of crime have also been shown to be correlating with inequalities. It is seen that if the society has an unequal distribution of wealth it leads to the development of vices such as theft. Such vices do develop in the society because of inappropriate exposures to opportunities. For people to leave in a harmonious manner, everyone must have an equal share of opportunities and resources. If this is not the case, people will develop habits of stealing from those who have more resources. The weaknesses in the economy created because of poor distribution of resources have important implications for the budget. The deficits in the budget in recent years are because of the weak economy and not the other way round as thought by many people. If the society had more rapid and robust growth, the situation of the budget would be much improved to the better side. This is why there exists a sense of investments in decreasing inequality and increasing equality of opportunities not only for the economy of the society but also for the budget (Angle 2006, pp.388–414). Therefore, what remains is the fact that the distribution of wealth in the society matters a lot. Even though its impacts may not be felt hugely compared to the income inequalities, wealth inequalities are as important as income inequality. Its negative impact in the society outweighs its benefits if only a few individuals in the society are the ones having access to opportunities and resources then it call for an answer (Chung & Lu 2006, pp.2505–2506). In a society where a few control the wealth, hat society is seen to be incomplete and having minimal cohesion. A society without any sense of togetherness and cohesion where distrust is practices then the same society cannot grow economically. It requires unity for people to coordinate and work hard in bringing development and creating new opportunities. Hence, the inequalities in wealth distribution matters a lot (Anonymous 2011). Future of Global inequality Global inequality has largely been because of difference in the rate of growth in economy; that the growth of economy is as a result of national policies; and the national policies are a result of conditions of national socio-politics. This implies that the changes of global inequality over the next five decades will purely be depending on the national political economic trends that may or may not encourage the growth of economy (Western & Keister 2001). History holds the view that the national governments in every state have the key to the future of global inequality. This implies to the extent that the poor countries governments break through the entrenching interests to providing opportunities for economic advances to their citizens to improve their education and social conditions as well as managing the integration of economy with the rest of the world. What can be done about inequality? Recommendations There is no single policy that can be formulated to tackle wealth inequality single-handedly. The roots of inequality problems do extend deeply into our economic structure. The solution to this problem will therefore need actions that are ambitious and concerted in various fronts. The following can help in tackling the vicious problem of wealth inequality (Wade 2012, pp.21-50); Making quality childcare available to every individual- the first five years in people’s lives are important to the cognitive as well as the social part of development, yet the United Kingdom to date has expensive system of childcare. Doing away with the system to maximize better childcare and ensure that it is affordable to all can help in addressing inequalities. Tackling polarized pay- overall, the economy might be showing signs of improvement, but the share of wealth being pocketed by the employees is shrinking. The average wages of employees have been decreasing for years. Clearly, the direction to be taken by a country does not aim at having a healthy and equal distribution of wealth. A link should be made between the economic prosperity of a country with the wages of the employees (Angle 2006). Fairer tax system- the population of the people who are in low incomes are always hit hard by the direct and indirect taxes. Reforms in progressive tax such as lands can help a country in addressing inequalities at its roots and redistributing the country’s economic power. The introduction of fair policies of tax in the tax system by the policy makers will help a lot in reducing the tax given by the poor. Fair system of tax will imply that the struggling families can be able to transition themselves from poverty-stricken lives (Western & Keister 2001). Conclusion There is a lot of debate concerning the economic impact of unequal distribution of wealth. In conclusion, inequality of wealth in the society is a huge problem that has to be fixed eventually for the better part of the society development. Today, we are seeing the beginning of the logical effect and consequence of those individuals being pressed into a corner because of their lack of accessibility to the basic necessities such as shelter and food (Ghiglino 2005). If we continue moving down the using the same path, the society will realise a situation in which its people simply will have no resources and money to buy the products that a consumer-based life expects of them. In addition, they will find no ways and no options left for them except taking their problems to the streets and clinging on ideologies and solutions that no longer fit in solving their status quo. Inequalities in the society are easy to get worried about. It offends the moral intuitions, which the society was founded on, and it ears into the foundation of the societal dream. 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