Question

According to the US Census Bureau, the Gini Coefficient in the United States was 0.397 in 1967, and 0.480 in 2014. The Gini coefficient is a measure of inequality that ranges from 0 to 1, where higher numbers indicate greater inequality. According to the World Bank, countries with Gini coefficients between 0.5 and 0.7 are characterized as highly unequal. Using the idea that Incentives Matter, analyze BOTH the pros of some income inequality and the cons of excessive income inequality.

Some income inequality can be good because of the " trickle down effect" and rewarding hard work and taking risks and investments.

The cons of excessive income inequality are unfair monopoloy, homelessness, and can easily lead to poverty.

Answer 1

The Gini coefficient is a measure of inequality that ranges from 0 to 1, where higher numbers indicate greater inequality.

Some income inequality can be good because of the " trickle down effect" and rewarding hard work and taking risks and investments. This is because when the money and wealth is with the rich business lass people they mostly invest it or use it for productive activity this in turn generares employment and income opportunity for other sections of the people so if more money is with business class this money will flow to all of the economy in different forms this is called trickle down effect which is very good for economy. This is also because these business class people make risky investments and than do very hard work to convery these investments into profits so it is obvious that they will have more money and wealth as compared to others.

The cons of excessive income inequality are unfair monopoloy, homelessness, and can easily lead to poverty. According to the World Bank, countries with Gini coefficients between 0.5 and 0.7 are characterized as highly unequal. In these countries a large proportion of income and wealth is with small number of people and this is not good because this may make these people act as monoapolist and further exploit others. This may increase the intensity of poverty among other sections of the society and hence these people may not be able to have even basic necessities of life like food, cloth and shelter. So excess inequality is bad.