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Why Care About Inequality? - Dr William Van Lear

Friday, January 22, 2021 9:08 AM | Bryan Casey

Modest levels of economic inequality go without condemnation. People’s incomes can vary from differences in effort, education, innovation, and career choice.

Inequality is problematic when the range of high to low income is vast or when income is concentrated in a small percentage of people at the top of the income ladder.

Vastly different incomes are largely associated with people who control and / or own large commercial enterprises. Large property possession rewards people for their labor, but also for their organizational and risk-taking efforts connected to the control or ownership of property.

Whether one finds the role that property plays in creating inequality justifiable, there are three basic reasons to be concerned about very high inequality:

1. Economic Activity: When a large percentage of a nation’s income is concentrated at the high end, those people place much of that money into savings accounts and pensions, not into the purchase of goods and services. High inequality therefore deters employment growth.

2. Speculation: High inequality means there is much cash in the hands of a few people. An important outlet for this money is speculative financial markets. This use of cash can drive up asset prices to unsustainable levels, setting up the stock and other markets for a crash.

3. Power: The people advantaged by high inequality have a heighten means to affect legislation, to set the parameters of policy debate, and to impact public thinking. To some extent, a small minority can rule the majority.

We know how to moderate inequality because the country did so in the middle 20th century: have high income people pay higher tax rates than low income people, finance poverty programs, implement social insurance, enlarge public funding of education, expand voting rights, and encourage collective bargaining.


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