ECON449W - M6 Assignment

As a legislative aide for the Congressman of San Diego, I have been tasked with the evaluation and summary of arguments for and against the debate of income inequality. Overall, there are many arguments from either side of the debate which all prove to hold valid points. First we will analyze arguments in support of income inequality then follow up with arguments for income equality. When considering the incentives amongst people in an economy with income inequality, we may take notice of the fact that the general incentive to work hard is significantly higher than that of an economy with income equality. For instance, if we were to take a look at someone with lower income compared to someone comfortably sitting at a higher income, then we would likely see that the person with a lower income will feel incentivized to work harder in order to achieve that same state of financial comfortability. Similarly, for someone with a high income, they would likely continue to work hard, or perhaps even harder, so that they can continue to maintain that state of financial comfortability. Generally speaking, if income inequality ceased to exist, then there would be no incentive for people to improve their work ethic as well as their living standards. Moving forward, income inequality further promotes greater savings and with those savings then comes greater investments. In an economy with higher income workers and lower income workers, it's easy to perceive that those with higher income have the ability to save more of their income over time. This proves true when we see that many lower income workers, especially those who live alone or with a spouse who is also a low income earner, will live paycheck to paycheck, barely being able to survive in their economy. Furthermore, higher income earners who are able to save larger portions of their paycheck are able to invest that money as capital meant for promoting the growth of different businesses. Something that exemplifies this is ABC's tv show Shark Tank . In this show we witness four to five people of higher income looking to invest in start-up companies so that they can promote growth and increase the income and profits of both parties. This segways into the next argument for income inequality, which is that it allows for more high-quality and innovative products. In an economy of income inequality, as previously stated, there is a higher standard of living as well as greater incentive to improve. All of these factors grouped together allows for the stimulation of being able to produce new and innovative products. Granted, there would be an initial hike in prices of any new product, but once production evolves into mass-production there would be a decrease in the cost to produce that product since the required technology would evolve alongside it. The decrease in production costs would ensure a further increase in demand for the product as it would allow lower income households to afford the product. Keeping these three main points in mind, it would be safe to say that there would be an abundance of resources to promote economic growth. If an economy has an abundance of resources, then it would allow for those resources to be adequately allocated towards helping people in need whether it be through legal services, education, health, or even finance. Because the average earnings is higher than that of an equal income economy, it would allow for a greater government tax revenue. This is what makes a concept like this possible.
On the other hand, given that there is equal income in an economy, it would mean that there would be a lower use of resources as well as lower consumption as the living standards would be lower than that of an economy of unequal income. If the standard of living is lower, it would essentially mean that there would be more satisfaction among the poor. This is due to the equal redistribution of wealth. For instance, if we were to take money from the rich and redistribute that to the poor, the poor would see more gratification and satisfaction for that dollar than the rich person. Carrying on with this redistribution would then eliminate the societal status of being rich, thus allowing for each person to be in equal financial standing. Moving forward to the political side of an equal income economy, there would surely be more political equality. Furthermore, in an unequal income economy, it's apparent that those of higher income hold more influence in politics than someone of lower income. So, considering that an equal income economy eliminates an excess amount of money amongst a given person from the equation, it's safe to assume that along with the "rich factor" the influence they held, too, will be eliminated. With that being said, the political scene would surely no longer receive additional support in things like lobby groups, political fundraisers, and campaigns. There will be no additional influence through funds/capital, given that each person is in equal economic standing and equal economic influence. In an average economy of income inequality, there are significantly higher rates of crime and other illegal activities for the purpose of financial gain. Inversely, in an economy with equal income, there are significantly lower rates of crime and illegal activities for the purpose of financial gain. Given that income is equally distributed, especially in a system which does not possess a free market, people feel less inclined/incentivized to partake in illegal activities for financial gain given that everyone is on the same financial level. For instance, if someone is in an economy of unequal income, and they are low income earners, then they are more likely to act on the illegal activity, especially if they see that the reward for not being caught is a large sum of financial gain. Similarly, if someone is in equal standing with everyone else, in terms of income, then they will feel less inclined to act on the temptation of further financial gain through illegal activities regardless of the ease of access to the resources to do so. In an economy in possession of income inequality there we would generally expect to see greater incentives to better the standard of living, greater amounts of savings which would then lead to greater investments targeted for overall economic growth, higher quality innovations in regards to production of goods and services, and an overall increase in resources meant for economic betterment. When observing the arguments in favor of an economy with equal income, we would expect to see an overall decrease in the consumption of resources due to the lower standard of living, an increase in consumer satisfaction among the poor due to the equal redistribution of wealth, a decrease in political influence due to a decrease in financial influence as a result of wealth redistribution, and a decrease in the rate of illegal activities for the purpose of financial gain. For a long time there has been a great deal of debate surrounding whether or not income inequality should exist. On both sides of the debate we have analyzed fairly valid points, yet it is still hard to come to the conclusion on which is better to have for an economy.
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