Economic inequality

• 1. Defining The Inequality Spectrum

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  Economic inequality is an umbrella term for three distinct concepts: income, wealth, and consumption. Income inequality measures how the total sum of money paid to people is distributed among them. Wealth inequality tracks how the total sum of assets owned by people is distributed among owners. Consumption inequality looks at how the total sum of money spent by people is distributed among spenders. Each concept can be measured between nations or within sub-populations like age groups or gender groups. A Gini coefficient of 0 reflects perfect equality where all values are the same. A Gini coefficient of 1 reflects maximal inequality where a single individual has everything while others have none. Countries with a Gini index value above 50% include Brazil, Colombia, South Africa, Botswana, and Honduras. These nations face high levels of economic disparity compared to countries like Austria, Germany, Denmark, Norway, Slovenia, Sweden, and Ukraine which fall below 30%. The United Nations Development Programme uses an Inequality-adjusted Human Development Index to take these factors into account.

• 2. Historical Trends And Measurements

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  In 1820, the ratio between the income of the top and bottom 20 percent of the world's population was three to one. By 1991, that ratio had grown to eighty-six to one. Historical data shows long-run trends towards greater economic inequality over time. Exceptions occurred during the two World Wars and amid the creation of modern welfare states after World War II. Income inequality between nations peaked in the 1970s when world income was distributed bimodally into rich and poor countries. Since then, income levels across countries have been converging with most people now living in middle-income countries. However, inequality within most nations has risen significantly in the last 30 years particularly among advanced countries. A 2014 study by the Organisation for Economic Co-operation and Development found that income inequality in OECD countries is at its highest level for the past half century. The ratio between the bottom 10% and the top 10% increased from 1:7 to 1:9 in just 25 years. Research published in September 2020 overlaid maps of highly affected COVID-19 areas with HOLC redlining maps showing those marked risky to lenders were the same neighborhoods most affected.

• 3. Drivers Of Modern Disparity

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  Thomas Piketty argues that widening economic disparity is an inevitable phenomenon of free market capitalism when the rate of return on capital exceeds the rate of growth of the economy. Economists link automation to increases in economic inequality as it raises returns to wealth while contributing to stagnating wages at the lower end. In the United States real wages are flat over the past 40 years for occupations across income and education levels including auto mechanics cashiers doctors and software engineers. Stock ownership favors higher income and education levels resulting in disparate investment income. Trade liberalization may shift economic inequality from a global to a domestic scale. When rich countries trade with poor countries low-skilled workers in the rich countries may see reduced wages as a result of competition. Paul Krugman estimates that trade liberalisation has had a measurable effect on rising inequality in the United States. An IMF report in 2016 warned that certain neoliberal policies including privatization public spending cuts and deregulation have resulted in increased inequality. The decline of union power has also fueled rising income inequality according to studies published by the International Monetary Fund.

• 4. Social Consequences And Health

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  British researchers Richard G. Wilkinson and Kate Pickett found higher rates of health and social problems in countries and states with higher inequality. Their research included 24 developed countries including most U.S. states and found that in more developed countries such as Finland and Japan health issues were much lower than in states with rather higher inequality rates like Utah and New Hampshire. Studies link a surge in deaths of despair suicide drug overdoses and alcohol related deaths to widening income inequality. Cross national research shows that in societies with less economic inequality homicide rates are consistently lower. A 2016 study finds that interregional inequality increases terrorism. Research indicates that economic inequality leads to greater political instability including an increased risk of democratic breakdown and civil conflict. Inequality negatively affects happiness in Europe but not always in the United States according to a 2001 study by Alberto Alesina Rafael Di Tella and Robert MacCulloch. Countries with high income inequality and poor unemployment protections experience worse mental health outcomes among the unemployed.

• 5. Ideological Perspectives On Wealth

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  Socialists attribute vast disparities in wealth to private ownership of the means of production by a class of owners creating a situation where a small portion of the population lives off unearned property income. Marxist economists argue that capitalist firms increasingly substitute capital equipment for labor inputs under competitive pressure to reduce costs and maximize profits. This process exerts downward pressure on wages while raising productivity for each worker resulting in relatively stagnant wages for the working class amidst rising levels of property income for the capitalist class. Most modern social liberals believe the capitalist economic system should be fundamentally preserved but the status quo regarding the income gap must be reformed through progressive taxation. Classical liberals and libertarians generally do not take a stance on wealth inequality but believe in equality under the law regardless of whether it leads to unequal wealth distribution. Ludwig von Mises explained in 1966 that men are born unequal and that it is precisely their inequality that generates social cooperation and civilization. Milton Friedman famously stated that a society that puts equality before freedom will get neither while one that puts freedom before equality will get a high degree of both.

• 6. Policy Responses And Mitigation

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  A 2017 study in the Journal of Political Economy argues that American cutthroat capitalism gives rise to technology and innovation that more cuddly forms of capitalism cannot match. The OECD asserts that public spending is vital in reducing the ever-expanding wealth gap. Economists Emmanuel Saez and Thomas Piketty recommend much higher top marginal tax rates on the wealthy up to 50 percent 70 percent or even 90 percent. A minimum wage providing it is not set too high could thus boost pay with no ill effects on jobs according to The Economist. Public policy responses addressing causes and effects of income inequality in the US include progressive tax incidence adjustments strengthening social safety net provisions such as Aid to Families with Dependent Children welfare food stamp program Social Security Medicare and Medicaid organizing community interest groups increasing infrastructure spending and placing limits on rent-seeking. The United Nations Sustainable Development Goal 10 aims to garner international efforts in reducing economic inequality considerably by 2030. A 2014 UNDP report warned that greater investments in social security jobs and laws protecting vulnerable populations are necessary to prevent widening income inequality.