Jan 08 2013

Income inequality as a Market Failure

The prevalence of income inequality in free market economies indicates that inequality may be the result of a market failure. Those who are born rich are more likely to become rich, while individuals who are born poor are more likely to live a life of relative poverty. In a “free” market, it is believed, all individuals possess an equal opportunity to succeed, but due to a mis-allocation of resources in a purely market economy, this may not always be the case.

The resources I refer to here are those required for an individual to escape poverty and earn a higher income. These include public and merit goods that those with high incomes can afford to consume, while those in poverty depend on the provision of from the state, including:

  • Good education
  • Dependable health care
  • Access to professional networks and the employment opportunities they provide

Whenever a market failure exists, it can be argued that there is a role for government in regulating the market to achieve a more optimal distribution of resources. When it comes to income inequality, government intervention typically comes in the form of a tax system that places a larger burden on the rich, and a system of government programs that transfer income from the rich to poor, including welfare benefits, unemployment benefits, healthcare for low income households, public schools and support for economic development in poor communities.

Many politicians and some economists like to argue that income inequality is not as evil as many people make it out to be, and that greater income inequality can actually increase the incentive for poorer households to work harder to get rich, contributing to the economic growth of the nation as a whole. Allowing the rich to keep more of their income, in this way, leads more people to want to work hard to get rich, as they will be able to enjoy the rewards of their hard work.

Another common argument is that higher income inequality leads to social and economic disruptions that can slow economic growth and bring an economy into a recession or a depression, since the middle and lower income groups in the nation will not benefit from a relatively equal share of the nation’s output, and over time will see their living standards drop and their overal productivity and contribution to national output decline.

The debate over inequality and what government can or should do about it is at ther root of many other economic debates today. A recent study by the Political Economy Research Institute of the University of Massachusetts, Amherst, provides support for those who support the second argument above. Here are some of the main discoveries from the study, “Searching for the Supposed Benefits of Higher Inequality: Impacts of Rising Top Shares on the Standard of Living of Low and Middle-Income Families”.

Discoveries of the study:

Some believe that increase inequality leads to more growth, others argue that it leads to less growth.

A more interesting question is whether rising income inequality leads to a higher standard of living for everyone in society, or whether standards of living decline for those in the middle as the percentage of total income earned by the top 10% increases.

The study found that the higher the percentage of income earned by the top 10%, the incomes of those in the middle and bottom of the income distribution actually decreases. Not just the percentage of total income, but the actual incomes of these groups falls as the rich get richer.

The popular belief is that reducing taxes on the rich increases the amount of investment in the economy, creating more jobs and helping increase incomes of the middle and lower income households. This theory is sometimes referred to as “trickle down” economics, as the increased incomes and wealth at the top will “trickle down” and raise the incomes of the rest of society as well.

However, actual data shows that a 10% increase in the share of total income earned by the top 10% of income earners leads to a 2% decline in the incomes of households in the middle of the income distribution (based on data for the period between 1979 and 2005).

It’s not just that the rich get richer and the poor get poorer, rather that the rich getting richer makes the poor (and the middle income earners) poorer. This is a breakthrough discovery.

Possible explanations:

  • The rich contribute to growth abroad, rather than at home: Rich households’ higher incomes allow them to consume more domestic output and imported goods and services, but it also allows them to save more, which sometimes translates into more investment. But more investment does not always translate into domestic economic growth, since investment is now global. A rich American saving more does not mean American firms will have access to cheaper capital, as domestic savings may fuel investment in emerging markets or elsewhere abroad. Foreign investment resulting from savings among rich Americans counts as a leakage from America’s circular flow of income, leaving less income within America for the middle and low income earners. Essentially, much of the income earned by the rich is saved abroad, contributing to employment and growth overseas, reducing incomes of the middle class at home.
  • Reduced support for the provision of public goods: When examining living standards, more than just income must be considered, but also access to education, provision of health care and other public goods such as public safety and security. Richer households are less interested in things like public schools and social welfare programs, as they do not rely on these for their own well-being. Therefore, the richer the top 10% become,  the greater their incentive to work against efforts to fund public education, public health and public safety. The underprovision of these social welfare enhancing goods by govenrment further widens the gap between the living standards of the richest and the middle class. Economist Robert Reich refers to this phenomenon as “the secession of the successful”.
  • Wage competition reduces incomes in the middle: Business owners, who make up a large percentage of the richest households in America, increase their own incomes to the extent that they can drive down the wages they pay their employees. In this way a higher share of national income is enjoyed by a smaller proportoin of society. The minimum wage has barely increased over time, and workers have less bargaining power as fewer workers than ever are members of labor unions; this has allowed business owners to pay lower wages over time, concentrating an increasing share of national income in business profits, and less and less in wages for workers.

In the video below, the study’s author shares some of the findings discussed above. Watch the video and respond to the discussion questions that follow.

Discussion Questions:

  1. Summarize the argument against a government taking measures to redistribute its nation’s income to reduce the level of inequality between the rich and the poor.
  2. Summarize the argument for a government reducing inequality.
  3. Popular belief holds that “a rising tide lifts all boats”. In other words, if the total income of a nation is increasing, it does not matter if the rich are enjoying a larger percentage of the higher income than the poor and middle, because everyone is likely to be better off than if total income were not growing at all. Does the study discussed above support this popular view? Why or why not?
  4. What measures can a government take to assure that higher national income leads to higher standards of living for everyone in society, including the middle class and the poor? Why might the highest income earners be opposed to such attempts by government?
  5. Should government intervene to reduce the level of income inequality in society?

66 responses so far

66 Responses to “Income inequality as a Market Failure”

  1. Nathan R.on 06 Sep 2011 at 5:14 pm

    Summarize the argument against a government taking measures to redistribute its nation’s income to reduce the level of inequality between the rich and the poor.

    The main argument that governments have against redistributing income and reducing inequality is as follows. Firstly, some economics believe that if the top 10% of a nation earns more, this creates an incentive for the lower 90% of the population to work harder in order to achieve the same level of income as the richest of the rich. Secondly, these economists also believe in the trickle down effect. This means that they believe that if the rich are richer they are more likely to invest in capital, which benefits the private sector by reducing costs of production and increasing productivity, which means firms are more likely to hire workers and full employment is more likely to be either achieved or surpassed in long-term economic growth.

    Summarize the argument for a government reducing inequality.

    The main arguments for reducing inequality are as follows: Inequality can cause socila unrest as the poor and middle classes see the rich enjoy a much higher standard of living then they do. Now, social unrests lead to a less productive work force as it often translates in strikes for higher wages and such. Over the long-run this could mean that the total level of output for a nation with unequal income distribution, and no wellfare program to fix that, could undergo economic losses.

    Popular belief holds that “a rising tide lifts all boats”. In other words, if the total income of a nation is increasing, it does not matter if the rich are enjoying a larger percentage of the higher income than the poor and middle, because everyone is likely to be better off than if total income were not growing at all. Does the study discussed above support this popular view? Why or why not?

    No the study discussed above does not agree with the popular belief that "a rising tide lifts all boats". To put it simply this statement is proven false by the numbers that the study reveal, for each extra 10% in income that the richest gain there is a 2% fall in the income earned by the poor and middle classes.

    What measures can a government take to assure that higher national income leads to higher standards of living for everyone in society, including the middle class and the poor?

    There are several simple ways in which money can be redistributed in an economy. The first of these is of course wellfare programs. To take an American example, the head start program is a great example of how income can be distributed more equally by a government. Head start a federal program that is meant to give children from poorer families a chance to start ahed in education is funded solely by the taxes the richer Americans pay, so in essence the money payed by the rich is redistributed to the poor through education. Other examples of this include wellfare bonuses for unemployed workers, financial aid for poor families and other such programs.

    Why might the highest income earners be opposed to such attempts by government?

    The highest income earners might be opposed to such attempts by governments for one major reason. If income becomes more equal people start earning more money at each population cut-off, which means the rich appear less and less rich and their position seems less desirable. Also, this means that the rich cannot employ workers at minimum wage, because income equality means that each category of the population earns exactly their fare share of the nations income.

    Should government intervene to reduce the level of income inequality in society?

    I think that yes government should intervene. Not only would not taxing the rich lead to less funding in crucial domains of the public sector such as infrastructure and education, it would also reduce investment in the private sector. Rich people may invest more as their income rises but as the article says they do not necessarily invest for the benefit of their home economy, so the create a major leakage in any economy. Taxing the rich and redistributing the money to the poor ensures that this income stays within the circular flow of the national econoy and should, in theory be beneficial to all societal categories.

  2. Nathan Pon 06 Sep 2011 at 9:16 pm

    1. A government would not want to redistribute wealth because the inequality in said nation will lead to the poorer classes wanting to become as rich as the richer classes, and thereby creating economic growth, and better efficient.

    2. If a government were to reduce inequality in their nation, then there would be less chance of the lower classes in that nation wanting to revolt because of the richer getting richer, while they don't face the same type of income growth.

    3. The statement that "a rising tide lifts all boats" does not hold true. While it is true that as a nation becomes richer, it will only be the richer classes who will experience the same growth, because their "boats" will be better built, so to speak, than the poorer classes. This means that the poorer classes will experience a decrease in their average income, and their "boats" will start to sink in the higher tides. The study conducted above disagrees with the popular view, because it says that as the richer get richer, the poorer get poorer, which means the nation becomes more unequal.

    4. A government can place higher taxes on the rich, and redistribute it to the poorer classes, so that the poorer will have jobs, and will be able to gain a larger proportion of the increasing national income. This will lead for a better quality of living for all classes in the nation, by making the nation more equal, even if it isn't perfectly equal. The government should try to reduce inequality to a point where there is still an incentive of the poorer to become rich, but not to much so that the nation cannot grow to its full potential.

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  4. rpuri2on 31 Mar 2012 at 6:50 pm

    1. The main argument against the government taking measures to redistribute its nation’s income is that the greater income inequality may lead to increased incentives for poorer households to work harder to receive the elite high income. This contributes to the economic growth of the nation as a whole, which is very beneficial and supply side of the economy is boosted.
    2. The argument for the reduction of income inequality in the economy is that high income inequality leads to social and economic disruptions that can slow economic growth and may also bring the economy into a recession. It is thought that as a whole the living standards of the economy will drop and thus the national output will decline.
    3. The study detailed above goes against the thought that “a rising tide lifts all boats” as the study found that the higher “the percentage of income earned [by the richer] the incomes of those in the middle class of the distribution actually decreases” so the increase in income of the rich have an adverse effect to the economy.

  5. rpuri2on 31 Mar 2012 at 6:50 pm

    4. The government can take certain measures to ensure that higher national income leads to higher standards of living for the country. This is done through taxation and using the taxation beneficially to improve living standards. By taxing the richer (when their income increases) the government can use this added revenue to create welfare programs, education systems and other public facilities to improve the living standards of the lower income householders. The highest income earners will be opposed to such attempts by the government as the progressive taxes use reduces their real income (after tax). It is after all the highest income earner’s money being taken from them.

  6. rpuri2on 31 Mar 2012 at 6:50 pm

    5. The government’s primary aim is to achieve a stable rate of economic growth (one of the macroeconomic objectives of a country) in order to do so, all citizens must have a good standard of living. Without interfering into the economy, chances are the market failure that occurs (income inequity) will occur and will cause income inequity. By interfering and internalizing this market failure, the government improves the living standards of the lower income households. This in turn will help the economy as a whole as they can contribute to economic activity in a more effective and beneficial manner. Also, the supply side of the economy improves.

  7. rpuri2on 31 Mar 2012 at 6:55 pm

    I like your responses to the questions. I agree with you that the government should intervene into correcting this 'market failure' that is occuring (i.e. income inequality). In your opinion, why do you think the rich are making the lower income households poorer as described in the post above?

  8. Jessica Kennyon 01 Apr 2012 at 2:26 am

    1.Summarize the argument against a government taking measures to redistribute its nation’s income to reduce the level of inequality between the rich and the poor.

    Some inequality is a healthy incentive for the poor to work harder to get rich because of the appealing prospect that they get to “keep” most of their earnings. Also, some believe that decreasing taxes on the rich will increase the amount of investment in the economy so the wealth from the top will “trickle down” to the bottom by means of new or better paying jobs to the low or middle income households.

    2.Summarize the argument for a government reducing inequality.

    Some say that higher income inequality can slow economic growth and even bring about recessions because low and middle income groups don’t benefit proportionately from the nation’s output and over time their living standards and productivity will drop as a consequence of lack of motivation.

    3.Popular belief holds that “a rising tide lifts all boats”. In other words, if the total income of a nation is increasing, it does not matter if the rich are enjoying a larger percentage of the higher income than the poor and middle, because everyone is likely to be better off than if total income were not growing at all. Does the study discussed above support this popular view? Why or why not?

    No, the study explicitly refutes the popular view and shows that the contrary is true: the rich getting richer makes the poor get poorer. The reasons offered are that the rich may choose to invest their profits abroad, creating a leakage in the domestic money supply and causing the growth of markets in competition; the rich will probably support the private counterparts of public goods (i.e. education and health care) thereby neglecting the public system; and that the richer may deliberately concentrate wealth into their hands by refusing to increase workers wages, so they hold a higher share of the national income;

    4.What measures can a government take to assure that higher national income leads to higher standards of living for everyone in society, including the middle class and the poor? Why might the highest income earners be opposed to such attempts by government?

    Governments can apply progressive direct taxes, which require those with the greatest incomes to pay the disproportionately highest taxes, while those with lower incomes pay far less to no taxes. In this way, as national income increases, the government will obtain substantial revenue from the rich, which they can then “distribute” to the middle and lower classes by means of public goods, subsidies, disability and unemployment benefits, etc. The highest income earners would be opposed to this because they, who are materialistically well off, do not need the government’s welfare benefits, and are being charged higher taxes than people from lower classes.

    5.Should government intervene to reduce the level of income inequality in society?

    I believe they should intervene, but that the benefits cannot be so great as to lead to laziness and dependency of citizens. Some inequality is a healthy motivation, but in general, the government should intervene so that higher national income may indeed lead to higher standards of living, since, as the study reveals, in the free market, the rich getting richer isn’t just unhelpful for raising the poor’s low standard of living, but is a direct cause for it.

  9. Jessica Kennyon 01 Apr 2012 at 2:42 am

    Great extensive response for the arguments pro government intervention. However, I'd like to point out two things in your last answers that I didn't quite agree with. One, you said that taxing the rich and redistributing the money ensures that their income stays within the circular flow of the national economy, but when it comes to the REALLY rich, I think that the government isn't preventing money from being spent in foreign markets, it's more like they're taking from the rich's savings and putting it into circulation in the economy to generate capital and economic growth, rather than just sit in banks gaining interest. The other thing is that you mention that, in theory, this "redistribution" should be beneficial to all societal categories. But I disagree. The rich tend to prefer private services to the government provide public ones, so if the government is able to use their revenue to improve public education or healthcare, it's still not benefiting the rich, only taking money away from them. I'm not opposed to this, because I really don't see the value in saving up superfluous amounts of money, but I can understand how the rich might feel like they are at a huge loss.

  10. ahamdokon 02 Apr 2012 at 9:53 am

    1. The foremost argument that can be voiced against the government attempting to reduce income inequality/inequity is that by doing so the government removes the motivation for lower and working class households to continue working hard, because they have the government to support them economically. This would suggest that over time the economy of said country would not be at its optimal output or efficiency because those members of society who are being supported by government do not have to work as hard in order to achieve their goal of economic equity.

    2. Reducing income inequality would promote social peace, because the economy would no longer operate as a slave to the rich, but would rather serve most , if not all, the citizens of a country, regardless of their socioeconomic status.

    3. No the study discussed above does not agree with the popular belief that "a rising tide lifts all boats". According to the study, for each extra 10% in income that the richest members of the society gain there is a 2% fall in the income earned by the poor and middle classes, this data suggests a complete disagreement with the statement made.

    4. The government can redistribute some of the income from richer members of society and funnel that income into the lower and middle class in order to attempt to bridge the socio-economic gap. This can be done by levying higher taxes on the rich, and making them pay a higher percentage of their earnings as tax, and then using that tax money in order to benefit the poor. For example, rich tax payers money can be used to pay for building a school in a poor neighborhood, or employing better teachers to teach at public schools.

    The rich would be opposed to this imposition of higher tax because they do not require the benefits that the government is providing to the poor because they can already afford it themselves. Moreover, they are being charged higher taxes than those of lower income.

    5. I ,along with many economists, believe that the state or government should do as much as it can in order to promote equal opportunity for all citizens a country, and attempt to promote income equity. By doing this, the state ensures that the future generations that will be given equal opportunities dispite their lack of income and subsequently opportunity. Furthermore, by doing its best to attempt to resolve the problem of income inequity, government can provides the opportunity for the future generations to earn better employment, whcih will in turn stimulate the economy and provide better results as a whole for everybody.

  11. ahamdokon 02 Apr 2012 at 10:00 am

    First of all, great post, you answers were very concise and comprehensive. One a side not, i really like your answer to number 1, stating how you believe that some economic disparity between the rich and poor acts as an incentive for the poor to work harder, i think that you hit the nail right on the head with that statement. It is , in my opinion, one of the reasons that governments all over world don't consider taking measures in order to redistribute their wealth, and promote economic equity. Well done!

  12. ctoantran2on 02 Apr 2012 at 3:20 pm

    1. Summarize the argument against a government taking measures to redistribute its nation’s income to reduce the level of inequality between the rich and the poor.

    When the government institutes redistributive practices in the form of progressive taxes, transfer payments, provision of goods and services deemed beneficial to society, and other policies, there are indirect consequences that can actually be harmful. Progressive taxes decrease the incentive for people to work harder and make more money, since their money will just be taken away from them anyway, which hampers economic growth and may increase unemployment. Transfer payments can create a similar disincentive effect, where people rely on government money to live rather than working, which is a burden on society and stops them from contributing. Merit goods provided or subsidized by the government, such as healthcare and social security, have an opportunity cost that can hurt the government’s efforts to protect property rights and provide security, as well as tampering with the free market. Essentially, redistributive practices can have a negative impact on economic growth and can actually be counterproductive in fighting inequality.

    2. Summarize the argument for a government reducing inequality.

    Many argue that government has an ethical responsibility to ensure a reasonable standard of living for its citizens, or at least guarantee equality of opportunity. When there is inequality, many people are not presented with the same opportunities as the rich are. If the government were to step in and fight inequality, there would be many benefits. With education, healthcare, and other merit goods, people would have a much higher standard of living. Also, they would improve the labor factor of production by training citizens and keeping them healthy to do their jobs, improving labor supply. In the long term, this should help guarantee economic growth for years to come.

    3. Popular belief holds that “a rising tide lifts all boats”. In other words, if the total income of a nation is increasing, it does not matter if the rich are enjoying a larger percentage of the higher income than the poor and middle, because everyone is likely to be better off than if total income were not growing at all. Does the study discussed above support this popular view? Why or why not?

    This study does NOT support this view, since it shows that, even though the richest 10% have seen massive gains in income, the incomes of middle class and lower class families have actually decreased by about 2%, meaning that, despite national economic growth, the means of many have been reduced while the few have gained.

    4. What measures can a government take to assure that higher national income leads to higher standards of living for everyone in society, including the middle class and the poor? Why might the highest income earners be opposed to such attempts by government?
    The government could institute rigorous redistributive policies to channel national increases in income from the rich to the poor and middle class. Progressive taxes would be a prime example, allowing the government to derive greater revenue from the rich and to put it back into the economy in national programs such as education and healthcare. The rich would be against this because it would cut into their incomes and possibly reduce their standard of living (by a little). Also, they wouldn’t be benefited by national programs nearly as much because they already have the means to pay for them without government assistance.

    5. Should government intervene to reduce the level of income inequality in society?

    The state should go as far as possible to provide equal opportunity to all. However, it should not endanger the opportunities of some for the many. This does not rule out the progressive tax, which impacts the richest individuals, because the rich should still be able to sustain a high standard of living even with high taxes. It does preclude any policies that essentially rob people of their livelihoods – no seizure of property. Addressing one demographic over another is acceptable (e.g. spending more on the education of the poor than the rich), as long as there are viable alternatives (e.g. private school). Overall, it would be much more beneficial for all if the government were to intervene regularly. The only losers would be the rich, who wouldn’t be nearly as impacted as the poor would be if the government did not step in.

  13. ctoantran2on 02 Apr 2012 at 3:24 pm

    I'm interested in your response to the fifth question. Do you think that providing equal opportunity is best for the short term? I agree that it will have the greatest long term benefits, but I'm unsure whether it will produce the greatest economic growth in the short term, since introducing progressive taxes and other interventionist policies could have a negative effect on the economy. "The state ensures that the future generations that will be given equal opportunities," but does that translate to *now*?

  14. aaxler2on 03 Apr 2012 at 3:06 am

    Your comments are very interesting. I'm particular interested on your thoughts about "viable alternatives" in private school. You seem to want to improve the quality and availability of public education, while maintaining a family's right to choose between public and private schools, but it seems like your hinting at some kind of credit for private school. This could be interesting. Almost something like a tax deduction to send you kids to private school, however this could have similarly negative consequences as to reducing the overall standard of education.

  15. cclatworthy2on 03 Apr 2012 at 4:32 am

    Summarize the argument against a government taking measures to redistribute its nation’s income to reduce the level of inequality between the rich and the poor.

    The rebuttal governments use against taking measure to redistribute its nations income to reduce the level of inequality between the rich and the poor is that, with the 10% of the population earning a large amount of income, this acts as a goal for the 90% of the population to increase their skills, work harder, and take the extra mile to receive the income that the 10% have. Another arguments is that the 10% that controls a large portion of the money will spend large amounts, which as a result reduces the cost of the good and services, causing consumers to purchase more, which will increase aggregate demand. With an increase in aggregate demand, firms are willing to hire more people in order to create output and increase income. This, as a result, will reduce unemployment.

    Summarize the argument for a government reducing inequality.

    The argument to reduce inequality is that due to the 90% of the population who have a low income, will look at the 10% and feel cheated, and demotivated. As a result of the demotivation and low moral, workers who have jobs with low income will ask for a raise in the income, and if they do not achieve this they will, collectively form a group to protest the unfairness, called a strike. This will reduce the aggregate demand because those on strike will not be able to purchase goods and services. This will slur the circular flow of money and as a result move aggregate demand down which will reduce GDP, and conversely GDP per capita.

    Popular belief holds that “a rising tide lifts all boats”. In other words, if the total income of a nation is increasing, it does not matter if the rich are enjoying a larger percentage of the higher income than the poor and middle, because everyone is likely to be better off than if total income were not growing at all. Does the study discussed above support this popular view? Why or why not?

    The study mentioned above does not agree with the quote. Essentially this statement is incorrect due to the numbers that the is revealed, for instance for each extra 10% in income that the richest gain there is a 2% fall in the income earned by the poor and middle classes.

    What measures can a government take to assure that higher national income leads to higher standards of living for everyone in society, including the middle class and the poor?

    There are several simple ways in which money can be redistributed in an economy. The most successful of all is the welfare program because it essentially uses the taxes from the portion of the community who earn an income. This is then put into a program to give the youth a job, it provides a pension to the retired, and essentially helps the lesser advantaged portion of the community, by providing them with funding, or at least tools in order for them to earn an income. Another way in which the government can improve living standard is by providing, or subsidizing a local schooling system, this will give people the opportunity to obtain a set of skills that can give them a job, thus an income. It is the fundamental building block that need to be established, and where the cracks lie in order to find a cure that can solve the problem,

    Why might the highest income earners be opposed to such attempts by government?

    They might be opposed because they put in a large amount of time to obtain the job they have now, they would not have put in the time to become a “doctor” or a “brain surgeon” if they received the same wage and income as a “waiter.”

    Should government intervene to reduce the level of income inequality in society?

    I believe that the government should leave the system as it is, and not reduce the level of income inequality in a society, because if everyone where the same it would give people a reason to take jobs that do not require large amount of time to become. By this I means that if all the jobs received the same payment, people could just become a plumber, because it takes little or no time in school to learn how to become one, but what the heck I receive the same play as a doctor so I don’t need to invest that time. This will reduce the amount of goods and services produced in an economy.

  16. cclatworthy2on 03 Apr 2012 at 4:38 am

    Hi,

    I like your response to question four, I do have an addition that you may find interesting. Do you think that implementing a schooling programme could lead to higher national income?

  17. skalra2on 03 Apr 2012 at 10:27 am

    1.Summarize the argument against a government taking measures to redistribute its nation’s income to reduce the level of inequality between the rich and the poor.1.Summarize the argument against a government taking measures to redistribute its nation’s income to reduce the level of inequality between the rich and the poor.

    The main argument against a government taking measures to redistribute its nation’s income to reduce the level of inequality between the rich and the poor is that it will reduce incentive for the poorer households to work harder to get rich thereby reducing their contribution to the economic growth of the nation as a whole. There is more incentive to work hard and produce good work when they can enjoy the rewards of their hard work instead of spending large proportions of it on taxes. High taxes may also lead to people setting up business in a more tax friendly country reducing GDP of the nation

    2.Summarize the argument for a government reducing inequality.

    The main argument for this tends to be that it is the governments’ job to look after its citizens and ensure that they are provided with basic needs. All citizens must receive an equal opportunity. Another common argument is that higher income inequality leads to social and economic disruptions that can slow economic growth and bring an economy into a recession or a depression, since the middle and lower income groups in the nation will not benefit from a relatively equal share of the nation’s output.

    3.Popular belief holds that “a rising tide lifts all boats”. In other words, if the total income of a nation is increasing, it does not matter if the rich are enjoying a larger percentage of the higher income than the poor and middle, because everyone is likely to be better off than if total income were not growing at all. Does the study discussed above support this popular view? Why or why not?

    The study above does not support this popular view. In fact it says that the rich enjoying a larger percentage of total income makes the poor and middle income class earn lower. The study finds these to be the reasons:
    •The rich contribute to growth abroad, rather than at home
    •reduced support for the provision of public goods
    •Wage competition reduces incomes in the middle

    4.What measures can a government take to assure that higher national income leads to higher standards of living for everyone in society, including the middle class and the poor? Why might the highest income earners be opposed to such attempts by government?

    The government can adopt the progressive tax system. People with higher incomes will pay a larger amount of tax to the government which the government can use to provide necessities, health care and education to the poor. Government could help the poor in the form of subsidies and providing infrastructure for health care, education and defense. Transfer payments such as pensions and unemployment benefits also help.

    5.Should government intervene to reduce the level of income inequality in society?

    I think the government should intervene to reduce the level of inequality in society not only for the good of all its citizens but also economic growth. Higher inequality means that the middle and lower income classes do not enjoy the rewards in comparison to the amount of work they put in. There are social and economic disruptions that can lead the country into depression or recession. The ‘Occupy Wallstreet’ movement in USA is an example of how high inequality leads to angst and opposition in the middle and poor income classes.

  18. skalra2on 03 Apr 2012 at 10:51 am

    @Jessica Kenny
    I agree with what you have said about unemployment benefits. These should be provided in moderation as too high an amount can lead to dependency and laziness. This is the situation in European as well as USA under President Obama’s administration. Higher unemployment benefits are not the only factor contributiong to high unemployment rates but they definitely contribute.

  19. Jianfeion 03 Apr 2012 at 12:24 pm

    1. In the eyes of the free-market economists, they would argue that the government’s way of redistributing nation income, that is by a tax system, places a burden on the rich, since the tax system tend to remove more from the rich than the poor. They would say that the inequality between the rich and the poor would encourage the poor to work harder, as the poor can then see how far behind they are.

    2. The argument for a government reducing inequality is that when a high-income inequality exists, the disruption will affect the middle and the poor in a bad way, so that they will receive a drop in their living standards. In addition, when the middle and poor have lower living standards, they become unable to contribute to the nation output, where it declines.

    3. No, the study found out that when the total income rises, the rich have taken away the increase from the middle and the poor. The way that the rich make the middle and the poor poorer comes from transactions abroad, since the rich tend to use their increased income on possible luxury goods that do not exist in their domestic markets. With their increased income, they might not have ideas on where to spend it, thus some of the rich would put that income into savings, where it leads to investments. These investments, however, can go both global and domestic, where it does not return to the domestic circular flow. Most of the rich will also neglect the provision of public good for the others, such as education and health care. Therefore, the middle and the poor will not benefit from the increase.

    4. A progressive tax system can be used to assure an increase in living standards for all income earners when there is an increase in national income. Since the progressive tax system demands more tax on high-income earners, such actions can redistribute the income to the middle and poor, while the highest income earners gain an increase from the national increase. As the progressive tax system demands more tax on high-income earners and the highest income earners, they are opposed to such attempts, as they have to give up a higher proportional income in taxes rather than spending the income themselves.

    5. As the study has told, the free-market views of leaving the rich and the poor on their own had a negative effect, I believe that the government should intervene to reduce the level of income inequality in society. Only that way, higher national income can lead to higher living standards for everyone in the society, even when the high-income earners are opposed by it. As the rich tend to pour their income in global investment, the leakage will be big if the government does not intervene. The middle class and the poor will also be affected, negatively affected, as the study shows. Therefore, the government should intervene to reduce the level of income inequality in society for a greater distribution of income so that everyone can experience higher living standards, and for higher national output resulted from the higher living standards.

  20. smarttikalevi2on 03 Apr 2012 at 1:52 pm

    1. A government wouldn't want to redistribute it's nation's income, because greater inequality this would increase the desire for the poor to become rich with hard work, by receiving the elite income. This would therefore increase the whole nation's economic growth, which is very beneficial to the economy.

    2. The argument for the reduction of income inequality is basically that high income inequality slows down the economic growth of a nation in many ways (e.g. economic disruptions) and thus there's a possibility of a recession. The living standards will drop in the economy, meaning national output will lapse.

    3. The study does discuss about this particular idea, that if the total income of a nation is increased, does everyone benefit from it. The straightforward answer is no (which shouldn't be a surprise)… Why though? – Well the study found that the higher the percentage of income earned by the top ten percent, the incomes of the ones in the middle and bottom actually decreases. The text makes this clear: "…the total incomes of these groups fall, as the rich get richer."

    4. The government can take measures to assure, that higher national income leads to higher standards of living for everyone, by for example imposing direct taxes to the rich. This way the government could redistribute the income to the poorer classes, who would then get a larger proportion of the increasing national income. Although this wouldn't make the situation equal, it would help the nation as a whole. The governments should in my opinion to try reduce the inequality of nation's income to a certain point where the poor still want to become rich, although they're gaining more income.

    5. I touched this topic (should government intervene to reduce the level of income inequality in society) already in the previous question, but yes, government should intervene on this. Not too much of course, because this wouldn't be beneficial at all to the nation, but up to the point, where the poor still have the desire to become rich by working hard.

  21. smarttikalevi2on 03 Apr 2012 at 2:02 pm

    @rpuri2
    Precise and accurate answers, and in question three I was delighted when I saw you use a quotation from the actual study (although next time you might want to use a bit more of those). I have nothing bad to say on your answers, as I agree with your opinions. However in your 4th answer you didn't mention what kind of taxation the government should use. Saying that the government should impose direct taxation to the rich would make your answers even more perfect, but these are only small details..

  22. Jianfeion 03 Apr 2012 at 2:05 pm

    For your answer in number 4, I would like to ask you: If it take be assured that the higher national income would lead to higher living standards for everyone, is there still a possibility to reduce the living standards of the rich to below the point before the increase in national income?

  23. Allan Gramachoon 03 Apr 2012 at 2:06 pm

    1.Summarize the argument against a government taking measures to redistribute its nation’s income to reduce the level of inequality between the rich and the poor.

    Some inequality is a healthy incentive for the poor to work harder to get rich because of the appealing prospect that they get to “keep” most of their earnings. Also, some believe that decreasing taxes on the rich will increase the amount of investment in the economy so the wealth from the top will “trickle down” to the bottom by means of new or better paying jobs to the low or middle income households.

    2.Summarize the argument for a government reducing inequality.

    Some say that higher income inequality can slow economic growth and even bring about recessions because low and middle income groups don’t benefit proportionately from the nation’s output and over time their living standards and productivity will drop as a consequence of lack of motivation.

    3.Popular belief holds that “a rising tide lifts all boats”. In other words, if the total income of a nation is increasing, it does not matter if the rich are enjoying a larger percentage of the higher income than the poor and middle, because everyone is likely to be better off than if total income were not growing at all. Does the study discussed above support this popular view? Why or why not?

    No, the study explicitly refutes the popular view and shows that the contrary is true: the rich getting richer makes the poor get poorer. The reasons offered are that the rich may choose to invest their profits abroad, creating a leakage in the domestic money supply and causing the growth of markets in competition; the rich will probably support the private counterparts of public goods (i.e. education and health care) thereby neglecting the public system; and that the richer may deliberately concentrate wealth into their hands by refusing to increase workers wages, so they hold a higher share of the national income;

    4.What measures can a government take to assure that higher national income leads to higher standards of living for everyone in society, including the middle class and the poor? Why might the highest income earners be opposed to such attempts by government?

    Governments can apply progressive direct taxes, which require those with the greatest incomes to pay the disproportionately highest taxes, while those with lower incomes pay far less to no taxes. In this way, as national income increases, the government will obtain substantial revenue from the rich, which they can then “distribute” to the middle and lower classes by means of public goods, subsidies, disability and unemployment benefits, etc. The highest income earners would be opposed to this because they, who are materialistically well off, do not need the government’s welfare benefits, and are being charged higher taxes than people from lower classes.

    5.Should government intervene to reduce the level of income inequality in society?

    I believe they should intervene, but that the benefits cannot be so great as to lead to laziness and dependency of citizens. Some inequality is a healthy motivation, but in general, the government should intervene so that higher national income may indeed lead to higher standards of living, since, as the study reveals, in the free market, the rich getting richer isn’t just unhelpful for raising the poor’s low standard of living, but is a direct cause for it.

  24. Marcis Martinsonson 03 Apr 2012 at 2:37 pm

    1.The issue of government trying to increase the standards of living and the level of inequality is that it would not work out as well as it sounds in theory. It can actually lead to social and economic disruptions and decrease in economic growth and therefore it might bring the economy into recession.

    2.However, if the theory work then it actually could improve the standards of living and make the poor richer and still the rich would become richer. The poor would become more motivated for getting more money and therefore work harder than before by increasing the revenue for riches.

    3.It did not fully discuss about it but it did mentioned such things as what happens when rich get richer and poor get richer but those are just theories and they are still up to discussions .

  25. Marcis Martinsonson 03 Apr 2012 at 2:37 pm

    4.They should definitely collect more information about the poor ones and middle class and evaluate their standards of livings as opposed to rich ones because it does not really matter if rich ones get richer or poorer during the increase of standards of living. The situation of riches would not affect the increase of national income, well they would but their spending will not decrease they will either stay the same or increase even if they are running in losses.

    5.I think that this again it is government’s responsibility to find the equilibrium of income equality. It all really depends on the nation’s economy

  26. Marcis Martinsonson 03 Apr 2012 at 2:45 pm

    You mentioned in 2nd question that it would slow down the economic growth, however I thought you are supposed to talk about pros in that question for governmnent.

  27. Marcis Martinsonson 03 Apr 2012 at 2:49 pm

    Your answer number 3, I agree that it does not directly talk about the theory however, I think they have mentioned some facts about it.

  28. iyang2on 03 Apr 2012 at 5:00 pm

    Summarize the argument against a government taking measures to redistribute its nation’s income to reduce the level of inequality between the rich and the poor.

    The government believes that actions must be taken in order to reduce the gap of inequality between the rich and the poor for two reasons. One is that when the top 10% of a nation earns more, the rest must work harder to be equally “rich”, while the top 10% doesn’t need to try so hard. They also believe that the gap will eventually lead to a trickle down effect, where the rich will overuse their money to invest on capitals. This will cause rich firms to continue growing, and they will continue to hire workers until full employment is reached. This causes a harm in the long-term economic growth.

    Summarize the argument for a government reducing inequality.

    The argument for a government reducing inequality originates from the social unrest faced by the poor. While the rich continues to grow from economic growth, the poor has no choice but to just envy the higher standard of life styles the rich is having. This social unrest will grow and grow until society takes action by going on strikes. In the long run, the total level of output for a nation will undergo economic losses.

    Popular belief holds that “a rising tide lifts all boats”. In other words, if the total income of a nation is increasing, it does not matter if the rich are enjoying a larger percentage of the higher income than the poor and middle, because everyone is likely to be better off than if total income were not growing at all. Does the study discussed above support this popular view? Why or why not?

    The post goes against the popular belief of “a rising tide lifts all boats”, as it states that for each extra 10% in income that the richest gain there is a 2% fall in the income earned by the poor and middle classes. When the rich continues to grow, there’s less space for the minorities to grow. Rather than the poor gaining benefit from the rich, they fail to maintain what they have and suffer a great loss.

    What measures can a government take to assure that higher national income leads to higher standards of living for everyone in society, including the middle class and the poor?

    There are several simple ways in which money can be redistributed in an economy. The first of these is of course wellfare programs. To take an American example, the head start program is a great example of how income can be distributed more equally by a government. Head start a federal program that is meant to give children from poorer families a chance to start ahed in education is funded solely by the taxes the richer Americans pay, so in essence the money payed by the rich is redistributed to the poor through education. Other examples of this include wellfare bonuses for unemployed workers, financial aid for poor families and other such programs.

    One way government can take action is by imposing tax on luxury goods that only the richest can afford. This will somewhat address the inequalities, for the riches will be able to pay the extra tax that the poorest don’t need to because it’s not a necessity in life to have those goods. When the rich people pay more tax, they will be contributing more of their income to the economic growth. The poor will benefit from the contribution, and the gap between the rich and the poor, known as the Gini coefficient, will decrease.

    Why might the highest income earners be opposed to such attempts by government?

    The highest income earners will oppose to such attempts because there are no benefits for them. When the government imposes tax on the luxurious goods, they are aiming to decrease the inequality by making the rich spend more. This will not be supported by the highest income earners because they wish to spend as less as they can while still making the highest income.

    Should government intervene to reduce the level of income inequality in society?

    I believe the government should intervene to reduce the gap between the rich and the poor. Closing the gap will allow a fair share among society, and the poor will not conduct strikes that can harm the economy in the long run.

  29. iyang2on 03 Apr 2012 at 5:12 pm

    I'm very surprised by your conclusion in number 5. You seem to conclude that the rich will be the ones that loses when inequality is reduced. I believed that to an extent the rich will also gain benefit from the decreased inequality.

  30. iyang2on 03 Apr 2012 at 5:14 pm

    Your ideas are very clear and your analysis is very accurate. However, I would like to question you on number 4, and if the only reason the rich opposes government action is solely on the purpose that its not necessary? Just a thought :)

  31. Vickyon 03 Apr 2012 at 6:33 pm

    Jianfei,
    Is it ironic that we are searching for income equity however taking away income of the rich to give to the poor? Isn't this actually agaisnt our goal? Although I also think that progressive taxes is a very smart way of collecting taxes, should we actually do it?
    Vicky

  32. Vickyon 03 Apr 2012 at 6:42 pm

    1. Summarize the argument against a government taking measures to redistribute its nation’s income to reduce the level of inequality between the rich and the poor.
    Inequalities in income may result as incentives for poor people to work harder in order to get rich. Also, when the rich has more money, it is assumed that they will use it for investment, stimulating the economy resulting in economy growth. No matter rich or poor, everyone can benefit from this.
    2. Summarize the argument for a government reducing inequality.
    Higher inequalities may result in economic disruption, causing recession or depression. Since people with low income doesn’t see improvements in their living standards, their incentives for working will then decrease, causing overall productivity and contribution to national output to decline.
    3. Popular belief holds that “a rising tide lifts all boats”. In other words, if the total income of a nation is increasing, it does not matter if the rich are enjoying a larger percentage of the higher income than the poor and middle, because everyone is likely to be better off than if total income were not growing at all. Does the study discussed above support this popular view? Why or why not?
    No, this study doesn’t support this view. The study shows that when there is an economic growth, rich people get richer while the poor people actually gets poorer. This is due to rich people investing overseas causing leakages in the circular flow of income. Also, rich people can live well without provision of public goods, hence they may not support the government using their funds in those perspectives. Another reason would be rich people keeping their wealth by only giving a small part of profits to workers. The main discovery here is not only rich people getting richer and poor people getting poorer, rather it is the rich people getting richer which causes the poor people to get poorer.
    4. What measures can a government take to assure that higher national income leads to higher standards of living for everyone in society, including the middle class and the poor? Why might the highest income earners be opposed to such attempts by government?
    Progressive taxes can be applied, and a transfer of income. The rich people will oppose to this if they are acting rationally, as this is an unfair policy to them, and the only losers of this method would be them.
    5. Should government intervene to reduce the level of income inequality in society?
    Yes, I think the government should, however only to a certain degree. This degree, in my opinion, would be how much the rich people can bear. I guess if you take away a little money from the rich they won’t make a big deal out of it, but if the government goes overboard there would be great oppositions.

  33. Anair2on 03 Apr 2012 at 7:06 pm

    1. The main argument that governments put forward against the redistribution of income and reducing inequality is essentially that the incentive or drive for the lower income classes to aim to earn as high as amounts as the higher income classes will be decreased and thus economic growth will be affected. Also it will mean that less investments will be made thus productivity will be reduced and thus even with the greater number of skilled workers, overall not as much employment will be possible.

    2. The argument for a government reducing income inequality in the economy was firstly that the inequality would cause issues on a social and economic scale. These issues would then cause a decrease in productivity and economic growth and thus output of the economy, as a whole would decrease. Essentially the middle and poor class would be affected negatively reducing their standard of living and thus affecting the economy in a grand scale.

    3. The study shown above is in absolute contrary to the popular belief, because as the study has proven, with every increase in the income of the rich, the income classes that are lower actually found falls in their incomes and thus proves the statement to be false. Essentially as the rich get even gain, the poor lose, as the rich make foreign investments and overall they control more of the national income.

    4. There are in fact quite a few ways that governments that higher incomes leads to higher standards of living for everyone in society. Firstly similar to what some politicians in the US do, high taxes can be placed on the rich so as to subsidize merit goods such as education for the others so as to raise the standard of living. Governments can also restrict certain welfare benefits from the rich so as to increase the funds governments have to spend on the rising of standard of living of everyone. This will not necessarily bring equality as such to the incomes but it will definitely make the situation as a whole better. This is actually better because if we absolute equality with incomes, the drive to move forward will be reduced thus productivity will decrease.

    5. In my opinion there should definitely be a certain level of intervention from the government so as to ensure that the population has a decent standard of living and make sure the incomes are spread fairly to a certain extent. This would also mean that the public sector would thrive far greater as the private sector would not take as many investments and thus leakages can be avoided. If interference does not take place it may result in poverty rising as their standard of living will gradually drop and the whole idea of equality will shatter. On the whole economies will benefited by government intervention to promote a rise in standard of living.

  34. anair2on 03 Apr 2012 at 7:13 pm

    you made some interesting responses to the questions, looking at the first question it was interesting to see how you mentioned that full employment would be reached. You took a different route with your answer to the second question as me but it was nonetheless very true as the envy may stir up. On the whole do you beleive that the gap should be completely closed?Overall you made some good and informative responses.

  35. Stefan Jon 03 Apr 2012 at 10:19 pm

    1.Summarize the argument against a government taking measures to redistribute its nation’s income to reduce the level of inequality between the rich and the poor.

    Some economists believe that the government shouldn’t be encouraged to redistribute its nation’s income because the income inequality will motivate workers to work harder and find jobs in the market to become rich. Though, the level of income inequality has reached a point where it is simply unfair. First of all, for the lower income citizens to ‘work harder’, they need the resources to achieve it. A good education comes with a price tag and less and less people can afford private schools due to the increasing income gap.

    2.Summarize the argument for a government reducing inequality.

    The argument states that it is the government’s job to reduce the income inequality because it seems as the rich are only interested in their own benefit and couldn’t care less about economic growth. Higher income inequality causes social and economic disruptions (riots, strikes?) which slows economic growth. Reducing the income gap will create a more equal playing field and more people will be allowed the same resources such as education and healthcare and create a stronger workforce.

    3.Popular belief holds that “a rising tide lifts all boats”. In other words, if the total income of a nation is increasing, it does not matter if the rich are enjoying a larger percentage of the higher income than the poor and middle, because everyone is likely to be better off than if total income were not growing at all. Does the study discussed above support this popular view? Why or why not?

    The article does suppose the ‘trickle down’ effect which states that less taxes for the rich allows the invest in the economy and create more job opportunities which decreases unemployment and may also raise income levels. Though, as much as we’d like to see this happen, the data proves otherwise. As the rich get richer, a smaller group is benefiting from a bigger percentage of the national output while the rest have to share a smaller percentage. This is where greed plays in as the rich who are seeing increases in income, invest abroad which takes out money out the economy’s circular flow. Now with factors such as inflation, the purchasing power of slowly increasing wages is outpaced and decreased.

    4.What measures can a government take to assure that higher national income leads to higher standards of living for everyone in society, including the middle class and the poor? Why might the highest income earners be opposed to such attempts by government?

    Governments can simply redistribute the income from the rich to the poor, because face it, why does a wealthy family of four need $100 million dollars while thousands of families live off $50k a year. Taxing the rich by a higher percentage and reallocating the government expenditure by subsidizing healthcare and education would raise the standard of living for middle/poor citizens who would not of been able to afford these resources prior. But once again, the rich lobbyists can bribe politicians to avoid such fiscal policies to occur because of their greed.

    5.Should government intervene to reduce the level of income inequality in society?

    For the prosperity of the nation’s economy, I believe the government should reduce the level of income inequality. Not only would the citizens be happier, but with a fair playing field, everyone would have the ability to acquire a good education and not be restricted by their income levels. More specialized workers in the field will decrease the chance of major unemployment and recessions.

  36. Stefan Jon 03 Apr 2012 at 10:24 pm

    Looking at your answer to question 5, I couldn't agree with you more. I believe the increasing income inequality threatens sustainability for future generations and their chances of obtaining a solid education and opportunities in the work force simply because it would only be available to the small group of wealthy citizens. The government should definitely take action and promote economic equality.

  37. Emily Kaminskion 03 Apr 2012 at 10:59 pm

    A government cannot completely reduce inequality because it will effect the opposite level of income. Say if taxes were directed more towards the high- income people' this would make their paychecks decrease but would not necessarily help the lower-income people. To help the lower income people the quality of living must be increased and to do this their incomes have to be larger. There would still be unequality if the hinger- income people were taxed more because the percent of income would go down, which would actually make the the nation's income decrease.

  38. Emily Kaminskion 03 Apr 2012 at 10:59 pm

    The video seems to be more in favor of the government taking a step to slow the unequality between low and income people. This is shown by the statistics in the first minute of the video when it mentions the top five percent of the richest U.S makes over 65 percent of the countires assets. THe study does not support the saying "a rising tide lifts all boats" becasause even if the higher income people supported the country it will be harmful to the lower income people. THe middle and poor classes do not make up for much of the nation's income because the welathy are able to afford more goods. By them buying more goods does not mean that everyone is participating in that spending which makes them not better off. THe government can make the rich pay more taxes so it will restrict the amount of goods they can buy which allows the middle and low income people to be able to purchase a little too with less of a tax. By the higher income people paying more it restricts them to how much money they can spend and make which therefore allowes the middle and low income people to be a part of the nation's income.

  39. Emily Kaminskion 03 Apr 2012 at 11:02 pm

    I really like how you explaned the last question. By everyone having the same income people will tend to choose the eaier job because no matter what job they do they still make the same amount. I had not considered this type of example.

  40. ssewellon 04 Apr 2012 at 5:33 pm

    1. The argument against the government addressing inequality is that it decreases the incentive to work harder. This will be harmful to economics growth, because countries are not making the most of their resources.

    2. Many believe that the government should take steps to reduce inequality, in order to prevent relative and absolute poverty, and prevent people being ‘trapped’ in poverty.

    3. The study suggests that, far from benefiting those with lower incomes, an increase in higher incomes may cause their incomes to fall, because increased spending often goes abroad.

    4. Governments can prevent inequalities of income by using progressive taxes such as income tax, which charges higher earners as larger portion of their income, and transfer payments. These measures are naturally unpopular with higher earners, because they lose more of their incomes.

    5. Personally I believe that the government should intervene in the case of income inequality, to allow everyone to have more equal standards of living. However, care must be taken to ensure that any intervention does not cause even more severe problems.

  41. ssewellon 04 Apr 2012 at 5:50 pm

    I think you make an interesting point in question two about the incentive to work. We normally assume that intervention to reduce inequality will reduce the incentive to work, since higher incomes are taxed more. But as you point out, too large an inequality could cause the same problem. If there is too great a gap between low and high incomes, then a similar lack of motivation could arise because people may see higher incomes as unattainable.

  42. ichoi2on 08 Apr 2012 at 6:13 am

    1. At points, governments would rather prefer the income inequality, because:
    i) greater income inequality can actually raise incentive for poorer households to work harder to get rich and thus contribute to national economic growth.
    ii) reducing taxes on wealthy citizens will allow greater investment in the economy and thus raise income for low and middle class citizens as well.

    2. At points, government may rather decide to intervene in order to regulate the income inequality.
    i) middle and low classes are constantly affected negatively; without government intervention, poor will remain poor.
    ii) middle and low classes cannot contribute to the national economy if they are not given the chance to apply its fullest capability.

    3. The studies I discussed above is totally contradicting what the popular belief 'rising tide lift all boats'. Whilst this saying says that no matter who is getting the share, as long as the economy as a whole is rising, everybody included are all better off than having the economy static or in a downfall state. However if we look at the studies done above, it seems like not 'everybody' is better off. Only those who are rich and getting the larger portion of the shares is positively influenced, and that those who belong to middle and low classes do not.

    4. Some of the ways that governments could intervene to regulate the inequality could be that they could impose higher taxes on those who are rich. So this simply means that the more you earn, the more you pay (for tax). This idea, however, will be severely rejected by those who are rich, because it probably would not seem 'fair' in their perspective. On the other hand, the governments could also put forth restrictions for those rich citizens so that the social benefits and advantages would be equaled out.

    5. I personally think that governments should intervene to regulate the inequality in terms of wealth distribution, but only to a degree that it does not 'completely' equal it out. Of course, those in middle or low classes should be given opportunities and chances to get back to its feet, and those who are rich andin a more advantageous situation also has social responsibility to contribute more to the society (but this comes out to be the matter of morality, so I would not go further in to detail in this post). However, it is also wrong for the government to completely equal it out, because then as those studies mentioned, it would give citizens no incentives nor motives to work harder and to strive for a better living.

  43. inhyeon 08 Apr 2012 at 6:35 am

    Hey Sakshi!
    Overall, great post! I just have a question for you, for your response on number 5.
    Do you think governments should, at all times, intervene so that they equal out the inequality fully? I responded to that question by saying that government intervention should take place, though only to a certain degree. What would you say to that?

  44. Samantha Kimon 10 Apr 2012 at 3:29 am

    1.Summarize the argument against a government taking measures to redistribute its nation’s income to reduce the level of inequality between the rich and the poor.
    The main argument against a government taking measures to redistribute its nation’s income is involves the idea of trickle-down economics. It is based on the concept that if the rich is allowed to keep their money, they will make more investments and also consume more thus create more demand, more jobs, and a general raise in wages. Also, there will be more incentive to work hard in order to produce more and quality goods in order to gain these investments. More tax will simply result in entrepreneurs setting up businesses overseas and not contributing to the domestic economy.
    2.Summarize the argument for a government reducing inequality.
    The main argument for government reducing inequality is that based on the data not only from the past 15 years, but more extensively, it can be seen that as the richer get richer the poorer actually get poorer as the richer try to maximize their incomes and lower middle and lower incomes in order to gain accumulate even more wealth. Also, as the richer get richer they will no longer feel the need to support public services as they will have enough money to send their children to private schools and provide their own protection. In order to prevent this and eventually economic recession as a result of these lowered wages across the community, government should intervene.
    3.Popular belief holds that “a rising tide lifts all boats”. In other words, if the total income of a nation is increasing, it does not matter if the rich are enjoying a larger percentage of the higher income than the poor and middle, because everyone is likely to be better off than if total income were not growing at all. Does the study discussed above support this popular view? Why or why not?
    The study discussed above does not support this popular view. It supports the view that even for a short period of time there is a rise tide lifts all boats this is just the result of the economic cycle, but in the long run the richer will be the only ones that continue to get richer and the poorer will simply become poorer. Also, simply become the wages are increasing and even generally standard of living is increasing the fact that there is this gap almost ensures an economic recession in the future.
    4.What measures can a government take to assure that higher national income leads to higher standards of living for everyone in society, including the middle class and the poor? Why might the highest income earners be opposed to such attempts by government?
    The most effective and sure measure that the government can take to assure that higher national income leads to higher standards of living for everyone is through progressive tax. Through this tax, those receiving higher incomes will be taxed at a higher percentage and thereby contribute back to the government. The government should take this money and use it on public service projects and investments.
    5.Should government intervene to reduce the level of income inequality in society?
    The government should intervene to reduce the level of income inequality in society to some extent. Obviously complete free market economies do not exist and will never work. However, I also feel as though suffering under too heavy percentages of tax should not punish the rich too severely. If progressive tax is too high for the rich than the rich will have less incentive in order to fuel the economy because they will feel as it will the government take all. It is a challenge, but the government must find a compromise that satisfies the rich as well as aids the community by not making the gap too wide.

  45. Samantha Kimon 10 Apr 2012 at 3:37 am

    I think your post is generally well written, but I do not think that the government should reduce the equality in their nation in order to avoid revolt. I think the chance of revolt of actually relatively low, but the economy will suffer as a result of this vast change gap in equality between the rich and the poor. Economic recession would probably result as a result of this gap. Also, revolt seems to be a somewhat unrelated topic since that would be against the government.

  46. Samantha Kimon 10 Apr 2012 at 3:41 am

    Even though your explanations are brief, I think they really described what I felt in a more condensed form. However, I am curious about your response to question 4. How do you think that the rich would feel about the only ones taxed. Also, how do you think that the money should be distributed to the poor?

  47. Konstantin Frankon 10 Apr 2012 at 12:04 pm

    Summarize the argument against a government taking measures to redistribute its nation’s income to reduce the level of inequality between the rich and the poor.

    People are arguing that an unequal distribution of income motivates the poorer to earn more money and therefore work harder. By working harder the productivity gets increased. Furthermore there is a so called trickle down effect. This effect causes that the rich people spend more money and boost by this the economy. As the economy develops and grows everybody benefits. As it is said in the interview : A wave rises all boats.

    Summarize the argument for a government reducing inequality.

    Inequality can cause friction between the middle and lower class and the upper class. Many people feel treated unfair and this could lead to severe problems like riots. This will decrease the productivity of the economy and therefore cause a decrease in living standards.

    Popular belief holds that “a rising tide lifts all boats”. In other words, if the total income of a nation is increasing, it does not matter if the rich are enjoying a larger percentage of the higher income than the poor and middle, because everyone is likely to be better off than if total income were not growing at all. Does the study discussed above support this popular view? Why or why not?

    No, it does not. This statement is not valid, as the money the rich people are getting doesn't get necessarily spent in the domestic economy. Furthermore, the study showed that at the riches get richer, the poorer become poorer.

    What measures can a government take to assure that higher national income leads to higher standards of living for everyone in society, including the middle class and the poor? Why might the highest income earners be opposed to such attempts by government?

    Most governments charge taxes. As there are a lot of progressive taxes and many programs like funding for students who want to study but do not have the financial background, many governments already have taken measurements to increase the standards of living for everyone in society.

    Should government intervene to reduce the level of income inequality in society?

    I think the government should intervene to reduce the level of income inequality to a certain extent. Rich people should not get punished for earning much money, because often they have a lot of responsibility and are hard working. This should not be punished.

  48. Konstantin Frankon 10 Apr 2012 at 12:07 pm

    I think what needs to be considered is, that many riches are rich due to extreme hard working. Furthermore, many of them have a big responsibility, as they employ a lot of people. Therefore, being rich is definitely an incentive, but I think it is a very meaningful and important incentive. Rich people should give some of their money for an equal distribution, but they should not get punished for their wealth.

  49. epaulon 13 Apr 2012 at 10:05 am

    1. Summarize the argument against a government taking measures to redistribute its nation’s income to reduce the level of inequality between the rich and the poor.
    Supposedly as the market is free, all individuals have an equal opportunity to succeed, and a larger income gap should give poorer individuals more of an incentive to get rich – particularly as they would not be taxed highly and would benefit individually from the money. The work they put in would contribute to economic growth.
    2. Summarize the argument for a government reducing inequality.
    The inequality is a market failure, which the government is responsible for correcting – public and merit goods such as education and health care must be provided by the government. Also, inequality often leads to economic and social disruptions that can slow growth and create a recession, which the government doesn’t want.
    3. Popular belief holds that “a rising tide lifts all boats”. In other words, if the total income of a nation is increasing, it does not matter if the rich are enjoying a larger percentage of the higher income than the poor and middle, because everyone is likely to be better off than if total income were not growing at all. Does the study discussed above support this popular view? Why or why not?
    In terms of living standards, it disagrees with this view. The study showed that if the share of income of the top earners increased by 10% then the income of those in the middle and bottom of the income distribution decreases – ‘the actual incomes of these groups fall as the rich get richer’. This is the opposite of the ‘trickle down’ theory.
    4. What measures can a government take to assure that higher national income leads to higher standards of living for everyone in society, including the middle class and the poor? Why might the highest income earners be opposed to such attempts by government?
    The measures the government can take tend to be a tax system with a larger burden on the rich, and government programs that transfer these taxes and therefore these incomes from the rich to the poor. Examples include benefits (welfare, unemployment), healthcare, state schools and support for economic development in poorer areas. The highest income earners might be opposed to this as they would be losing money and therefore their standard of living is likely to decrease.
    5. Should government intervene to reduce the level of income inequality in society?
    The study mentioned in this article would suggest that it should – there are benefits to less income inequality and more income inequality is self-perpetuating. This is interesting coming from the UK, a country with high benefits and the NHS. Although I do agree and think that more income equality is a good thing, it is easy to argue that for many in society these benefits lessen incentives to work instead of just being a safety net – benefits need to be low enough to motivate people to work. High benefits are also very expensive for the government and economically inefficient.

  50. epaulon 13 Apr 2012 at 10:11 am

    In terms of question 1, surely these social and economic disruptions would be an argument for the government redistributing income? Bringing the economy into recession would be a bad thing and something the government would be looking to prevent. I think the main reason for leaving the income gap very unequal would be as an incentive for poorer people to work harder to get rich, as opposed to deciding that as their benefits give them the same amount of money as a low paid job they don't need to get a job.

  51. [...] Interaction DevHere's some good arguments against the "Trickle Down" theory from httpComment Loading… • Post • Just now  Add [...]

  52. rpilleon 22 Mar 2013 at 6:51 pm

    rpille

    1. The article discusses the theory that if the riches people earn most money, the poorer people will work harder to become as rich as the rich people. Furthermore if most of the money stays with the rich people they are most likely to make investments. Firms will also hire more workers.
    2. Inequality is a major cause of social unrest. Poor and middle class citizens will see the upper class enjoy their lives. They also want to become rich and enjoy the benefits. When they feel unequally treated and become less productive. Therefor the total output decreases.
    3. The study does not support the theory that all people will be better off when there is an increase GDP. The income of the rich will increase but the income of the poor will decrease.
    4. There are several programs that could lead to higher living standards of the poor. Through higher taxes the rich people finance education of the poor. Furthermore the government could give financial aids to poorer families or support them with essential goods. However the rich people would oppose these programs. Their position would become less desirable and less people would aim to become rich. Furthermore the production costs would increase due to higher wages which means that companies would need to employ fewer workers.
    5. I think the government should intervene to a certain extend. They should have higher taxes for the rich. However it should still be desirable to become rich. The economy would also be better off when wages don’t increase drastically.

  53. Paul Jeffrieson 03 Apr 2013 at 11:57 pm

    1.
    The problem with the redistribution of wealth is that it completely neglects the fact that the “rich” in America, are, for the most part, the job creators. The man or woman that’s making millions of dollars each year is the one that is creating jobs for middle class and lower class Americans because of the expansion of his or her company. If you take more money away from him or her in order to give it directly to those making less, then he or she has more incentive to stop all growth of the company and cut wages, in order to still make the same amount of money that he or she did before the tax increase. Essentially, no matter what the tax, there’s always the chance that the rich will put the burden of this tax on those that they employ in the form of lower wages. Another good argument against income redistribution is the lack of incentive to out there and gain money that will result. If the poor and the middle class are entirely supported by the government, given good lodging, food, health care, and education, why bother working?

    2.
    Before I give this answer I just wanted to point out the phrasing my quarrel with the phrasing of this question, because it shouldn’t be “summarize the argument for a government reducing inequality.” This implies than any government that does not focus on the redistribution of wealth is automatically not reducing inequality, and furthermore implies that the redistribution of wealth is the sole way to reduce inequality, as question two is obviously supposed to be built as the negative counterpart to question 1. That being said, a few of the arguments for the redistribution of wealth as a way of reducing inequality are as follows. The rich, seeing as they have more money than the middle class and the poor, can already afford things like health care, food, and education, whereas those less economically well off many not be able to. Therefore, seeing as there are very few rich people and a great deal of middle class and poor citizens, it would only make ethical sense for those who make more to pay more, in terms of taxes, for the overall betterment of the nation’s health. The reduction of inequality via taxation of the rich at a higher rate than that at which the middle class and the poor are taxes also makes sense from a purely statistical point of view. As we can see from the graph that accompanies this blog entitled “Global Distribution of Wealth” The top 0.001% make up 30 percent of the Global Distribution of Wealth, the next 0.1 % make up 32%, and the next 0.01 % make up 19 %. The bottom 99.9% makes up only 19 % of the global distribution of wealth. As such, if we want each to pay his/her “fair share” statistically, it would only make sense to tax those in the highest income brackets at a rate equal to what percentage of the global wealth distribution they make up. This, in turn, would help to decrease inequality which would give the government access to more money with which it can increase the standards of living of those less well off than the rich. Finally, the best way to sum up why a government should attempt to reduce inequality is already in the title on the blog page: “Income Inequality May Take a Toll on Growth”. It is the best interest of everyone, even the rich, to reduce inequality, in order to prevent a decrease in growth, which will harm everyone universally.

    3. Popular belief holds that “a rising tide lifts all boats”. In other words, if the total income of a nation is increasing, it does not matter if the rich are enjoying a larger percentage of the higher income than the poor and middle, because everyone is likely to be better off than if total income were not growing at all. Does the study discussed above support this popular view? Why or why not?

    The study quite clearly does not support this theory, and this is quite evident in that during the interview with the man behind the study he says quite clearly that study supports the theory that not only do the rich get richer as the poor get poorer, but furthermore that the rich getting richer is what causes the poor to get poorer.

    4. What measures can a government take to assure that higher national income leads to higher standards of living for everyone in society, including the middle class and the poor? Why might the highest income earners be opposed to such attempts by government?

    The measures that could be taken to do so would be to increase taxes on those in higher income brackets. This tax revenue could then be invested into programs / funds that will aid everyone, including both the middle class and the poor. Such programs public education, public health care, welfare, and state pensions funds. The highest income earners would obviously be opposed to such attempts because any increase in tax is less money for them to spend, and who would be happy about losing money?

    5. Should government intervene to reduce the level of income inequality in society?

    I think that the answer to this question is entirely relative to the situation at hand. For example, the U.S. and a myriad of other countries already do intervene to reduce the level of income inequality in society, therefore one could take this question as should the government do MORE to intervene to reduce the level of income inequality in society. In this case, I would say no, because look at what happened when France increased its tax rates just recently… catastrophe ensued and now they have undone the tax increase in the hopes of repairing some of damage they caused. Coming back to the original question though, should government intervene to reduce the level of income equality in society, my belief (as this is an entirely subjective question with no correct answer) is yes, they should, but not in the form of taking money from the rich and giving directly to the poor, as this would serve only as a disincentive to work, but rather, I believe that the money taken from the rich should be used to help fund services such as education, meal programs, scholarships, health care, and libraries, especially in economically disadvantaged places, which will not just give money to the poor and disadvantaged, but allow them the same opportunities to gain wealth as everyone else. It all comes back to the ages-old proverb, if you give a man a fish, he’ll eat for a day, if you teach a man to fish, he’ll eat for a lifetime.

  54. Paul Jeffrieson 04 Apr 2013 at 12:01 am

    @rpille

    I enjoyed reading your responses and getting your perspective on things, but I particularly agree with you on your comments about the causation of social unrest. That is not something that I thought of right away but I am very glad that you brought it up. Sometimes, in my responses, I fear as though I get caught up thinking only from the point of view of someone living in the United States, where we don’t have many social uprisings due to class based differences, and even though the term “class warfare” is thrown around quite a bit in the political scene, social unrest rarely if ever manifests itself in form of riots or other such demonstrations here. It is important to remember though, that this is not the case in many countries, hence why I thank you for bringing that point up.

  55. mlayurovaon 08 Apr 2013 at 5:55 am

    1. Summarize the argument against a government taking measures to redistribute its nation’s income to reduce the level of inequality between the rich and the poor.

    One of the main benefits of the inequality between poor and rich is that it created an incentive for poor people to work harder to become richer. When the government intefere and use its tax system to support poor and middle, they destroy that incentive and people’s will to work harder, because they know, that even if they worked harder they would get more money and more taxes. So that’s one of the main arguements against the government in this case.

    2. Summarize the argument for a government reducing inequality.

    The goal of the government in the fight with inequality is to provide equal opportunities to all its citizens. If everybody will be equal and there won’t be poor or rich, which is impossible, it will lead to communism, overall it will be hard because income for everybody is the same, i.e. even the hardest work will be paid as well as any other, thus there are won’t be a lot of people who will want to do the hard job, so the whole system will lead to destruction of the economy, and many other bad consequences. But if there will be high inequality then it will lead to dipression of the poor and middle people. That’s why one of the purposes of the government to find the balance and keep the inequality at that level.

    3. Popular belief holds that “a rising tide lifts all boats”. In other words, if the total income of a nation is increasing, it does not matter if the rich are enjoying a larger percentage of the higher income than the poor and middle, because everyone is likely to be better off than if total income were not growing at all. Does the study discussed above support this popular view? Why or why not?

    The study above doesn’t support this view. The actual results showed the opposite: “The study found that the higher the percentage of income earned by the top 10%, the incomes of those in the middle and bottom of the income distribution actually decreases. ” Mostly that happens because the rich people are tend to save or invest their money abroad, thus creating the leakage.

    4. What measures can a government take to assure that higher national income leads to higher standards of living for everyone in society, including the middle class and the poor? Why might the highest income earners be opposed to such attempts by government?

    As it was said above, the government intervention typically comes in the form of a tax system. Progressive taxes are the ones that work best in this situation. As income rises, a progressive
    tax would take larger percentages at higher incomes. That fact doesn’t please the people with high income that’s why the highest income earners might be opposed to such attempts by government.

    5. Should government intervene to reduce the level of income inequality in society?

    I think, the government should intervene when it’s needed. As I said there must be some balance, the level of inequality must not be too low or too high. And to prevent that the government has to take care of it.

  56. mlayurovaon 08 Apr 2013 at 6:04 am

    @Paul Jeffries
    I really loved your response, especially the answer to the first question. I believe that taxation can’t be 100% effective, one of the example could be your words: “…there’s always the chance that the rich will put the burden of this tax on those that they employ in the form of lower wages.”

  57. azacharjaszon 08 Apr 2013 at 3:09 pm

    1. Summarize the argument against a government taking measures to redistribute its nation’s income to reduce the level of inequality between the rich and the poor.
    The major benefit from the inequality in the distribution is that it is an incentive to work harder and become richer. Also it is very important to remember is that the rich people is the one that provide job in the country so if you reduce their income they won´t be able to offer the same quantity of jobs and this would result prejudicial in the long term. The same happen with the unemployment benefits because if those benefits are too high then the people won´t have incentive to work.
    2. Summarize the argument for a government reducing inequality.
    The complete equality is impossible so the government only can reduce it and this is a very difficult job. The government will always fin opposition in one class of the society because if the give too much to the poor people the rich people will protest, the same happen in the other direction. However everybody deserves the same quantity of opportunities so I believe that if the government tries to guarantee more opportunities to the poor people then the society would be more equal. However we have to remember that if the inequality is to big then the middle class will disappear and this will have negative consequences for the whole society because then the differences between the rich class and the poor class will be bigger and bigger.
    3. Popular belief holds that “a rising tide lifts all boats”. In other words, if the total income of a nation is increasing, it does not matter if the rich are enjoying a larger percentage of the higher income than the poor and middle, because everyone is likely to be better off than if total income were not growing at all. Does the study discussed above support this popular view? Why or why not?
    I doesn´t support the theory because when the rich become more rich it happens because the poor people become even more poor. Also the rich people invest their money in estates or they save them in order to guarantee that they will richer in the future.
    4. What measures can a government take to assure that higher national income leads to higher standards of living for everyone in society, including the middle class and the poor? Why might the highest income earners be opposed to such attempts by government?
    The government intervention typically comes in the form of a tax system. Progressive taxes are the ones that work best in this situation. When income increase the progressive will take a larger percentages income.
    The rich people think that if the government would do nothing they will be richer and that is the main goal of each person, it is part of the human nature that we always try to guarantee the best quality of live to ourselves and our family.
    5. Should government intervene to reduce the level of income inequality in society?

    Then government should intervene in order to maintain the balance in the distribution of income but they have to be careful because if they lose that balance they will create more bad than good.

  58. azacharjaszon 08 Apr 2013 at 3:10 pm

    #Paul Jeffries

    Like mlayurova I really enjoyed Reading your responses specially the first one in which you gave the example of the USA. I completely agree with you that the rich people are the ones that create jobs and if you tax them they will reduce the number of workers or they will pass the taxes to the workers or consumers.

  59. ywang2on 11 Apr 2013 at 5:23 am

    1.first, some people think that if there are unequal distribution of income, (rich people earn more money) then it will be a good thing because poorer people will work harder to try to get more income as richer people. Second, some economists think that if we have unequal distribution of income, the richer people who earn more money will put more money in to investment, that’s good for economic growth, and the whole society in long the run.

    2. Inequality of distribution of income will make the poorer people unhappy as they see the richer people getting richer and their living standard is higher than other people. And it might bring up the society unrest and cause welfare loose which we called market failure.

    3. No, it doesn’t. Because, while the economic of one country grow, the fact is that the richer people becoming even richer compare with the poor people because of the unequal distribution of income, the richer getting richer, and the poorer getting poor in comparison.

    4. Redistribution of income for rich people and poor people, for example, the direct tax of income, through more tax rich people paid for government, the government can redistribute some of the income from richer people to poor people, like welfare, free education and so on. The reasons are simple: if everyone end up getting same amount of income, the poor people will be happier, but on the other hand it means that the richer people will be less satisfied because they are getting poor since the rank of everyone is becoming the same.

    5. Yes, I think so. It’s better if the level of inequality distribution of income is lower, more people will be satisfied and I think everyone have their own right to grow up not in the poor family but is the same compare with other people’s. But at the same time, I think the government should not completely reduce the level of inequality of distribution of income down to zero, because I think, reduce the level of inequality of distribution of income might lead to market failure, since everyone’s income are quite the same, so some people will stop trying as hard as before to work because they think it’s not important since everyone get the same result. So I think government should reduce the level of inequality of distribution of income, but it’s more important to keep its level at the certain point.

  60. ywang2on 11 Apr 2013 at 5:29 am

    #Paul Jeffries
    well, I don’t know what else I can say here, you made the very good responses and I agree with you. plus your example are really good, it’s quite sarcastic to think about it in fact.

  61. jvanderelst123on 11 Apr 2013 at 9:08 am

    1. Summarize the argument against a government taking measures to redistribute its nation’s income to reduce the level of inequality between the rich and the poor.
    -Some economists think that increasing income inequality actualy helps the economy to grow and in general is better for the econoy, and they have a good reason to believe so because as the rich get richer it gives an incentive for the lower paid comunities to work harder, almost like a motivation boost for them. Also economists believe that as the richer get richer there will be more investments into the economy and this therefore will create more jobs for the lower and middle class workers.

    2.Summarize the argument for a government reducing inequality.
    – The main reason for the government to reduce income inequality would be social unrest. That is to say that the middle and poorer classes see the richer getting richer and living a much better life than theres. So as a cause tob this observation many of them will goon strikes demanding more money… in the long term this would effeft the economies total output in a negative way due to the work force not working at its full potencial

    3.Popular belief holds that “a rising tide lifts all boats”. In other words, if the total income of a nation is increasing, it does not matter if the rich are enjoying a larger percentage of the higher income than the poor and middle, because everyone is likely to be better off than if total income were not growing at all. Does the study discussed above support this popular view? Why or why not?
    It doesnt support the argumnet above because in the argumnet it says that as the riche get richer the poorer and middle classes income actually decreaces. So therefore it contradicts the above statement. there income decrease because there is a certain amount of money circulating in the economy and if the rich take all that money then there will be none left ffor the poorer and midlle clases like we see in this case.

    4.What measures can a government take to assure that higher national income leads to higher standards of living for everyone in society, including the middle class and the poor? Why might the highest income earners be opposed to such attempts by government?

    what the government does i simpose percentage taxes which basically takes a certain percentage of everyones income. So to insure income equlity, as the richer get richer more and more moeny is taxed from them and spent on the poorer and middle classes. This form would be the main income regulating system in many economies. the rich would oppose these taxes because they would say its very unfair since they would loose a significant amount of there incomes just to help the poor, and also they would argue that there money was hard earnt and that the government cant just come and take there money.
    5.Should government intervene to reduce the level of income inequality in society?
    Yes i think the governmnet should intervene but be carefull why they do it not to cause social unrest or unfairness

  62. jvanderelst123on 11 Apr 2013 at 9:13 am

    # azacharjasz
    I really like your answer to question three as you state that the rich save or invest there money in order not to loose it which i think iscompletely true. It was a very significant point and i think it was deffinitely worth mentioning as you reminded me of it

  63. joana wanderleyon 11 Apr 2013 at 3:44 pm

    1. Summarize the argument against a government taking measures to redistribute its nation’s income to reduce the level of inequality between the rich and the poor.
    Some governments argue, “A rising tide raises all boats”. This means that if the rich get more money they will invest on both national goods and give their money to the social welfares that are undertaken by the government. Moreover, that when the middle and working class see that the “harder you work the better the reward” this will be an incentive for the population to try and get richer, therefore, logically benefiting the whole nation itself. However, studies have shown that this does not happen. First of all, the rich getting rich is the cause of the poor getting poorer. It does not incentivise and makes it quite difficult for one to move up the social scale as they top 10% “protect” their positions and therefore it is extremely hard to be in that 10-20% of the rich. Furthermore, international investment has gotten popular over the years and this means that the rich are investing, however they are investing in other nations. This clearly does not cause national growth as they are helping other countries grow. The other argument is that the rich do not give money to public institutions, as they do not affect them. For example, the rich can pay for their own healthcare therefore they do not see the reason as to why they should pay for the public healthcare of their own government. This entraps the poor even more as they are not even given a chance.
    2. Summarize the argument for a government reducing inequality.
    The argument for this is that the rich should pay more governmental taxes so they are not as encouraged to internationally invest and spend their money. The tax collected would go to public welfare institutions, aiding those in need and shortening the gap in the income inequality and reducing market failure as well as lessening the risk in having a recession in the country.
    3. Popular belief holds that “a rising tide lifts all boats”. In other words, if the total income of a nation is increasing, it does not matter if the rich are enjoying a larger percentage of the higher income than the poor and middle, because everyone is likely to be better off than if total income were not growing at all. Does the study discussed above support this popular view? Why or why not?
    No, because they say that this is not true as this makes the rich richer and does not encourage the poor. In fact, it entraps them making it extremely hard for the poor to rise in the social class scale. Repeating the argument for question one: “First of all, the rich getting rich is the cause of the poor getting poorer. It does not incentivise and makes it quite difficult for one to move up the social scale as they top 10% “protect” their positions and therefore it is extremely hard to be in that 10-20% of the rich. Furthermore, international investment has gotten popular over the years and this means that the rich are investing, however they are investing in other nations. This clearly does not cause national growth as they are helping other countries grow. The other argument is that the rich do not give money to public institutions, as they do not affect them. For example, the rich can pay for their own healthcare therefore they do not see the reason as to why they should pay for the public healthcare of their own government. This entraps the poor even more as they are not even given a chance.”

    4. What measures can a government take to assure that higher national income leads to higher standards of living for everyone in society, including the middle class and the poor? Why might the highest income earners be opposed to such attempts by government?
    The richer you get, the more taxes you have to pay. They may oppose to this as they may feel it is unfair that they have to pay just because they are richer. The argument for it is that in free markets one may do what one wants to do with one’s money. Government intervention should not be this high.
    5. Should government intervene to reduce the level of income inequality in society?
    Yes, we are all citizens of a nation and we should therefore contribute to it. It is unfair for some individuals and companies to exploit the underclass like they are doing so and equality should be the goal of an economic market. This will decrease the risk of entering a recession and government intervention should be within all companies so all can therefore contribute to the public facilities and nation’s GDP.

  64. MaxWon 12 Apr 2013 at 8:53 am

    1. The government does not want to stop inequality because with this inequality people will be motivated to work harder in order to gain more wealth.

    2. A government should reduce inequality to increase economic growth. This should be done by increase taxes for richer people in order to make distribution more equal.

    3. No the study does not support this view. The arguments are mostly about getting the rich people richer in order to get the poor people to work harder.

    4. If people are rich they will have to pay higher taxes which will be used to increase living standards. Highest income earners may be opposed to such attempts because they have to pay more money meaning they can spent more money for their own benefit.

    5. Yes I think that government should slightly intervene in order to keep distribution somewhat equal so that the poor do not start to live in boxes. And so that the rich will not be too rich.

  65. [...] Income Inequality and Standards of Living [...]

  66. eye contact flirtingon 24 Jul 2014 at 9:01 pm

    eye contact flirting

    Income inequality as a Market Failure | Economics in Plain English

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