Money Inequality Matters, is it actually good or bad? - by chrisadventures

in #money8 years ago
"Imagine a ten-mile race in which contestants have different starting lines based on parental education, income, and wealth. The economically privileged athletes start several hundred yards ahead of the disadvantaged runners. Each contestant begins with ten one-pound leg weights. The race begins, and the advantaged competitors pull ahead quickly. At each half-mile mark, according to the rules, the first twenty runners shed two pounds of weights while those in the last half of the field take on two additional pounds. After several miles, lead racers have no weights, while the slower runners carry twenty additional pounds. By midrace, an alarming gap has opened up in the field, and by the finish line, the last half of the field finishes more than two miles behind the winners." (Chuck Collins, 2014)

Social inequality, political inequality, economic inequality, inequality has always been part of our human society. The free dictionary states "inequality is the state or quality of being unequal". Inequality doesn't feel right to many of us but on the other side inequality might be a good thing too. If everyone is equal, no one will be exceptional. And I mean, why work hard if you know everyone ends up equal in the end? Inequality has been a subject of discussion and for decades people have demonstrated in order to achieve equity. But is inequality actually a bad thing after all?

Current state of inequality

After years of studying Development Studies, I realized some interesting aspects of inequality. At first, there are some facts you need to know about out world's current state of inequality.
1. There's more than enough food in the world, but still one in nine people worldwide haven't got enough food to lead healthy active lives.
2. Nearly 75% of the world's adults own under $10,000,- wealth, an amount that equals the value of a successful Steemit post.... Source: click here
3. 1% of the world population now owns more than 50% of world's wealth (see figure 1 below)

Figure 1: the black curve indicated the cumulative relationship between the proportion of households generating a certain proportion of world income.

Development

Before studying, I never thought about the complex definiton of 'development'. At first, I thought it meant to improve a situation by improving technology, infrastructure and food provision. 'Development' and its definition is actually a quite vague and even a psychological term. I mean, what are we exactly aiming for in life? What wants a government to achieve? The Human Development Index is the most common measure of development. It's based on: 1. Literacy level, 2. Happiness, 3. Income per capita. But if certain 'developments' lead to unhappiness, should we still call it development? A country may be wealthy, but people might still be unhappy. The income per capita can be high, but unequally distributed. These situations should also be taken into account.

Fact 1: Income generates happiness

Previous research has shown an interesting positive happiness/income relationship between different countries.

Figure 2: the relationship between national average happiness and income per capita

Fact 2: Marginal utility of income diminishes 

Another thing we should take into account is the diminishing marginal utility of income. The first few hundred dollars of income helps us to provide ourselves in our primary needs. We can buy food, shelter and we are able to live a proper life. 

Figure 3: the relationship between personal happiness and income

Why we should combat financial inequality

If we assume these three statements:
1. Income differences generate happiness differences between countries (figure 2)
2. Diminishing marginal returns of income: money generates happiness to a certain extent (figure 3)
3. Happiness is the main goal and indicator of development

The Utilitarian Social Welfare Theory states that we should generate the highest amount of national utility by focusing on all individuals in the society. This means that inequality must be battled to a certain extent. Assume the following situation:

There's 20 people in a society. There's 1 high-class man ($1000,- per month, happiness=50), 2 middle-class men ($250,- per month, happiness=45) and 17 low-class ($50,- per month, happiness=25). 

Total income: $2350,- and total happiness: 520 

This situation is actually comparable to the world nowadays (see figure 1). If we look at figure 3, this situation is very inefficient. The $1000,- generated and spent by one man results into way less total utility than if it would be divided over the poorer people in the society. An extra dollar earned by poor people generates more increase of total utility than if that same dollar would be spend by the rich man. 

But there's two sides on the coin..

Sweden has had a good reputation as the global exemplar for income, gender and social equity. The country is driven largely by tax and welfare systems that modulate the extremes of economic success and failure. 

"Having spent generations idealizing equality and punishing high-skilled, high-income earners with punitive tax rates, it’s entirely plausible that Swedish kids and their parents would finally realize education, ability and work ethic are irrelevant to success in adulthood." (Source: click here

Over the past years, the performance of Sweden has dropped and according to OECD investigators, high taxes to equalize incomes across high- and low-skilled occuptations might result into low incentive to learn and work hard. There should always be a certain reward to effort and quality. Otherwise we wouldn't achieve the potential wealth and the country will end up way under its capacity.

So... what does this mean for us?

Money generates happiness to a certain extent but once you're fulfilled in your basic needs, it barely increases any further. This means that an appropriate distribution of money could optimize total utility. Inequality is good in a way because rewards are a main trigger to optimize effort and input in the society. This means we should distribute income, but not too much. We all contribute to that, so next time think about how you spend your wealth!

#money #life #steemit #economics #politics

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Money distribution is modern day natural selection at work. Some swans will be lost due to unfortunate circumstances but the majority of exceptional humans will make it out of the trenches. The problem I see is when the people are the top start getting rewarded for habits and traits that don't benefit the human race. Right now my gut feeling is that the world is being controlled by men like these, not by governments. In my head it doesn't feasible that presidents aren't just figureheads in this age.

I agree with that, I also have the feeling there's this invisible group of wealthy individuals that rule the world from the background. I mean, there's so much wrong with this distribution right now. Money is power, power is money...

Interesting read, thanks. I think the most interesting writer on global inequality right now is Branko Milanovic - if you haven't checked out his work, it's worth reading. He came up with the famous 'elephant graph', showing the winners and losers from globalisation over the last couple of decades:

I've seen this one before. It's interesting to see how different people are affected differently. Globalization might cause equity but at the same time it causes growing inequality....

The existence of money, in itself, means that someone will have it and someone won't. Money and inequality go hand in hand.

That's not good, or bad, it's just the way it is.

That doesn't mean we can't affect the extent of inequality, right? And whether it's good or bad is quite personal, I believe! ;-)

I guess we could say it's relative, yes. I mean if you don't have money and starving, then that's bad for you, and if you have a shitload of money that you don't know what to do with them, then maybe that's better for you.

But concepts like money, distribution, etc etc, are all neutral by themselves.

It's like guns, in a sense. Guns are neutral. A criminal or a terrorist may use one, or a homeowner protecting his life and family may use one. It starts to become good or bad depending the personal relevance.

As for fixing inequality, I think that will require a change to gold and silver. As long as the central bankers can print into existence all the money they want, then the money that people are holding in their hands can be diluted and devalued. So we need money that the central bankers can't print.

Got Ya !! Funny because I already followed you

Haha that's funny! Thanks anyways:D

I always thought that the financial inequality must exist, that way makes us strive to be better, to have higher education, by having better ideas, to work more.

Yep, that's what I believe too. Difference is a good way, but like I mentioned.... to a certain extent. High inequality leads to unhappiness. I think today's world is too unequal as 1% owns more wealth than the other 99% ;-). They should give this to the poorest starving 10%!

its a very sad reality

Yes. Political philosopher John Rawls argues that the right amount of inequality is the amount that helps even the poorest (because the incentives in inequality make the pie bigger even for the smallest share). I'm inclined to think that we can reach very close to the same criterion on utilitarian grounds, for reasons you give here.

The idea that there is such a thing as appropriate distribution and it can somehow be optimized i assume by bureaucrats is ridiculous. Income should be earned, not distributed by someone. No one gets to decide what someone else's needs are.

Also this pot confuses wealth income and money. These things are not the same.

True, I didn't make a clear distinction between the two concepts. Anyways, I believe them to be quite a bit the same. Purchasing power is also an important concept too discuss and makes the difference between the two concepts.

I think it would be good to distribute incomes to a certain extent. Nobody chooses where he or she is born and which capacities are given to him or her. If we were able to distribute this money/wealth, I believe we should do this to such an extent that there's still enough incentive to put effort into your work

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