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Why we must be concerned at increasing levels of economic inequality in the society

Updated on June 28, 2017

“Economic inequality” is a term used in reference to the variation of income and wealth of individuals and groups within a particular society. The main characteristics of economic inequality are when the rich keep on getting richer while the poor keep on becoming poorer. The specific way of describing the phrase is in regard to the existing gap in assets or income between the richest and poorest section of a society. Global trends have subsequently stirred a concentration of wealth by a few individuals at the expense of a larger section of the society. Economic analysis presents a worrying trend at which the level of inequality is increasing on a global perspective. Despite arguments supporting economic inequality, the negative ramifications caused by this trend are apparent: hindrance of economic growth, exploitation of disadvantaged section of the populace, increasing marginalization and oppression of the minority, and other social problems. These trend and ramifications necessitates that the world gets concerned on this increasing level of inequality in the society and do something to leverage on the increasing gap between the rich and the poor.

Some analysts argue that a level of economic inequality can positively influence economic stabilization over a short term. However, there are sufficient empirical evidence establishing a negative correlation of approximately 0.5-0.8 between sustained economic inequality and long term growth level (Thorbecke & Charumilind, 2002).

There are different analyses which have been presented to point out how economic inequalities hinder development in the society. A higher degree of economic inequality implies many members of a society are thriving under poverty. Where there is poverty, there is also poor and insufficient public health alongside increased rate of crime, aspects that places burden on the economy. A society that lives under low incomes and high food prices has a less likelihood of supporting pro-government policies Halter et al (2010). According to Stolzenberg et al, (2006), there is a tendency for wealthy people to maintain a lopsided political authority when compared to their poor counterparts. This subsequently leads to ineffective tax structures that are in favor of the wealth at the expense of the poor. Furthermore, unequal distribution of income in the society has a high potential of causing political instability, increasing the risk of repudiated contracts for the state, threatening property rights, as well as discouraging capital accumulation. Moreover, wide poor-rich gaps have a potential of increasing rent-seeking rate as well as predatory market behaviors which acts as an obstacle to economic development.

Denning (2011) explains that there is a tendency for societies with economic inequality to experience suppression of growth, owing to low human capital investments. In such societies, physical capitals are also scarce since few persons have sufficient funds and capital in invest in education and training. Consequently, it becomes difficult to meet demand for human capital, thus resulting into economic stagnation. Other problems generated from this situation are the increment of unsecured and risk loans as well as increased risk to lenders due to default of the borrowers. Such and many other risks in the market lead to increased market volatility alongside the potential for cascading defaults as those which were experienced in the subprime mortgage crisis of 2008 (Bardhan, & Wallerstein, 2006).

In societies with unequal income, public programs and policies pertaining to such aspects as education tend to receive low support from the masses. Solt(2008) observes a tendency where many governments create public policies that favor the elites in the society at the expense of the poor and marginalized group. A good example is the public education policies and programs which mostly do not receive support from the elite considering that they involve using public funds which are in most cases generated from taxes which are obtained from the rich and distributing the same to the poor class.

Members of the society who are impoverished are vulnerable of disproportionate incidences of specific types of diseases such as Marasmus, kwashiorkor, malaria, HIV/AIDS, among many others. In addition, most of them are also deeply affected by these conditions since they are unable to afford or access appropriate medical care. Further, such section of the society are unable to access health food and quality healthcare leading to higher disease level, higher cost of healthcare, high rate of mortality and the increasing level of poverty for those affected(Harvard School of Pub. Health, 2014). In United Stated, diet related conditions contribute to approximately 10% of healthcare costs in the country. Further, lack of healthy foods has been attributed to high rate of heart diseases, diabetes, cancers, osteoarthritis and other types of conditions (Levine, 2011).

A part from the high healthcare costs associated with poverty, the prosperity of a society and nation at large is greatly impacted when many of its members are experiencing poor health. Societies experiencing poor health are characterized by workforces which are less effective, high rate of insurance premiums, high rate of mortality and a weak economy (Kaldor, 1957). An economy that is weak typically presents few resources that are taxable, leads to provision of poor public services and a higher rate of taxes. What is more, the poor are have an added burden of increased healthcare cost, lack of or fewer employment opportunities and taking much time to look for food (Ortiz & Cummins, 2011).

Some analysts and theorists point out that economic inequality steers economic development in various ways. Among the ways in which it does this is by creating incentives for entrepreneurship and innovation. Positions with high remunerations for example, create a motivation for workers who are at a low rank to work hard in order to achieve a similar position. Similarly, members of the society who are less wealthy are also motivated to work hard, generate new enterprises, or invent new things in order to improve their income level (Smith, 1776). These proponents argue that in the event that there is a shorter gap between the levels of income, there will be a lesser motivation for those in the lower income rank to move higher the income ladder. This group of economists therefore observes that a successful economy must be characterized by income disparities. Kaldor (1957) explain that long term market trends portray pulls that are geared towards wealth concentration. According to him, when inequality is at its minimum over a short term, this subsequently creates low level of investment, lower level of consumption, low profit margin, low income level and low level of employment. Further, the market demands a high level of innovation and investment, aspects that require more capital in developing the necessary inventions and innovations. This whole process leads to heightened concentration of wealth.


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