In: Economics
1. what are one or two convincing reasons for the increase in income inequality over the last 35 years (approximately)?
2. The NPR piece presents a debate between two Nobel laureate economists concerning inequality. Becker argues for a ‘good kind of inequality’, Solow begs to differ. Can inequality ever be “good”? Why or why not?
3. Currently, the ratio of the mean income of the Richest 20% of households to the mean income for the Poorest 20% of households is approximately 17:1 – meaning, on average, for every dollar a household in the poorest quintile makes, a household in the richest quintile makes 17. If you were in charge of distributing income in the U.S., what would be your ratio? Why?
1. A few convincing reasons for inequality are-
2. Inequality can be good wen it increases the whole size of pie and not just takes from the poor and transfers it to the rich. For example, lets say the total GDP of a country is 100. Currently the richest person owns 20. Now, if he opens a new factory that increasese the GDP to 150 and he becomes richer by 20 (that is, he is now worth 40), while the inequality did increase, it also resulted on the total income of others increasing from 80 to 110. Thus, the total pie was grown and not just transfered from poor to rich.
If inequality happens this way, it can be good as it increases income and opportunities for all. A rising tide lifts all. But if its just transfer from poor to rich in the same pie, then its bad.
3. A growing and capitalist society will always hafve a high ratio from richest to poorest quintile. Increasing income is the primary motivation for many innovations and business establishments and hence, as explained in part B, inequality is not neccessarily a bad thing. But yes, the ratio of these quintiles shouldnt be extremely high.
In my opinion, the ratio should be somwhere close to 10. This is because while this ratio is still high enough for it to matter (that is, people will be encouraged to work hard so that they can achieve that level of income), but not so high that it completely leaves the poor out of the possibility of getting the opportunity to become better off.
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