Actually, I'd argue that wealth accumulation is MAXIMIZED in societies that do not skew towards Plutocratic extremes of wealth distribution... that wealth (for the whole society) grows MUCH FASTER and more SUSTAINABLY in such societies.
Care to present any evidence for that statement?
Some post about how wealth accumulation for the top x% was high before the great depression, and also high before the current recession, but that statement has issues with cherry picking data points, and also with causality.
Bubbles lead to investment capital going up faster than wages, which increases disparity of wealth since the rich get more of their income from, and have more of their wealth represented by, investment capital, than the poor, or even generally the not-rich. Bubbles also are often followed by busts.
Busts often follow periods of time when there is an increase in wealth disparity but the increases are caused by the bubble, and the bust is the aftermath of the bubble, the greater disparity doesn't cause the bust.
The main reasonable argument I can think of about income inequality hurting the stability of economic growth is that if it goes to far it might result in an increase in support for socialism and redistribution which will hurt economic growth. Other than that possibility I see no reason to think an increase in inequality is harmful to growth, in fact it often is the result of growth (investments pay off, increasing wealth and pushing economic growth, but the profits from those investments go to the investors, and are not equally distributed). Greater inequality is not usually the result of the poor getting poorer, but of the rich getting richer. People getting richer is a good thing not a bad thing. If they get richer by stealing from others, which would include rent-seeking using the government, or defrauding others, than what's bad is not their increase in wealth but the decrease in wealth of others, and also the unjust methods that where used to increase wealth. Absent such situations an increase in disparity of income allows for greater incentives to be productive and to make good investments, increasing the rewards for creating wealth.
Another point is many measures of inequality exaggerate it. They compare inequality of income, when inequality of consumption (or even consumption net of changes in savings and debt) are more equal. Worse they ignore transfer payments as part of the income. For example if 99% of the money from the rich was taxed away and given to the poor this would have no direct effect on the Gini coefficient. All the social benefits the government gives out are not counted in this very common measure of income inequality.
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The Upside of Income Inequality
By Gary S. Becker and Kevin M. Murphy From the May/June 2007 Issue
Filed under: Economic Policy, Public Square
Much of the widening gap in incomes reflects the rising payoff for a college education and other skills. Rising payoffs are a development that the authors, economists who have won the Nobel Prize and the Clark Prize, call ‘beneficial and desirable.’
Income inequality in China substantially widened, particularly between households in the city and the countryside, after China began its rapid rate of economic development around 1980. The average urban resident now makes 3.2 times as much as the average rural resident, and among city dwellers alone, the top 10 percent makes 9.2 times as much as the bottom 10 percent.[1] But at the same time that inequality rose, the number of Chinese who live in poverty fell—from 260 million in 1978 to 42 million in 1998.[2] Despite the widening gap in incomes, rapid economic development dramatically improved the lives of China’s poor.
Politicians and many others in the United States have recently grown concerned that earnings inequality has increased among Americans. But as the example of China—or India, for that matter—illustrates, the rise in inequality does not occur in a vacuum. In the case of China and India, the rise in inequality came along with an acceleration of economic growth that raised the standard of living for both the rich and the poor. In the United States, the rise in inequality accompanied a rise in the payoff to education and other skills...
american.com
Pareto principle vs. Gini coefficient
When professional economists think about economic policies, they generally start with the principle that a change is good if it makes someone better off without in making anyone else worse off. That idea, first suggested by the Italian economist Vilfredo Pareto, is referred to as the Pareto principle. I find it hard to see how one could disagree with such a principle, which is why it is the widely accepted foundation for the evaluation of economic Policies
Not all policies can be evaluated in reference to the Pareto principle. There are policies that make some people better off while making others worse off. The desirability of such a policy depends on how much the gainers gain, how much the losers lose, and the initial income and circumstances of the individuals involved. But that difficult evaluation is not my concern here. I am interested only in evaluating changes that increase the incomes of high--income individuals without decreasing the incomes of others. Such a change clearly satisfies the common-sense Pareto principle: It is good because it makes some people better off without making anyone else worse off. I think such a change should be regarded as good even though it increases inequality.
Not everyone will agree with me. Some see inequality as so intolerable that they regard increasing the income of the wealthy as a 'bad thing," even if that increased income does not come at anyone elses expense. Such an individual, whom I won describe as a 'spiteful egalitarian," might try to reconcile this with the Pareto principle by saving, " It makes me worse off to see the rich getting richer. So if a rich man gets $1000, he is better off and I am worse off. I dont have fewer material goods, but I have the extra pain of living in a more unequal world." I reject such arguments and stick to the basic interpretation of the Pareto principle that if the material well-being of some individuals increases with no decrease in the material well-being of others, that is a good thing even if it implies an increase in measured inequality.
nber.org |
