Inequality in Prosperous Societies: Economic and Moral Aspects

29 Pages Posted: 3 Jun 2019

Date Written: May 10, 2019

Abstract

A free market economy is characterized by an unequal distribution of income, wealth, and opportunities, to the extent that a considerable part of the population does not enjoy the wellbeing which an affluent society can offer. Recent studies have shown that excessive inequality is bad not only for moral reasons but for economic reasons as well. According to the International Monetary Fund, excessive inequality can erode social cohesion, cause political polarization, and lower economic growth due to the shrinking spending power of consumers. According to some estimations, rising inequality in the United States from 1990 to 2010 cut about five percent off the GDP per capita. Economists, such as Anthony Atkinson and Thomas Piketty, have regarded the growing inequality as one of the most serious economic problems of the modern world. In 2015, half of world's wealth was in hands of 1% of the population, and by 2030 the richest 1% may own two-thirds of the wealth. One reason for the increasing inequality is the accumulation of inherited wealth, which causes the economy to be dominated by a few rich families. Another reason is the very high salaries of some sectors, such as top executives of large firms. A third reason is the ability of the rich to pay very low tax rates on their real incomes. Steps to reduce inequality include conventional measures, such as high marginal tax rates on high incomes, a progressive property tax and taxes on inheritance, as well as more radical measures, such as nationalization and an upper limit on wages. Steps to reduce the gap from the lower end include strengthening work unions, improving public education and health systems, and legislating a minimum wage (or a universal basic income) that allows decent living. However, there is no magic formula which fits all. Each country should choose the appropriate combination of steps which fit its economy at a given time, and find the delicate balance between economic equity and free market tenets.

Keywords: Prosperous Society, Inequality, Welfare State, Tax Evasion, Minimum Wage, Universal Basic Income

JEL Classification: A13, D63, H26, I14, I24

Suggested Citation

Kirsh, Yoram, Inequality in Prosperous Societies: Economic and Moral Aspects (May 10, 2019). Available at SSRN: https://ssrn.com/abstract=3388483 or http://dx.doi.org/10.2139/ssrn.3388483

Yoram Kirsh (Contact Author)

Open University of Israel ( email )

1 University Road
Ra'anana, 4353701
Israel
972-532-209726 (Phone)
972-9-7782661 (Fax)

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