Inequality – what can be done about it?

The leader in The Economist this week focused on the causes and the cures for inequality. It has been a major part of the political debate in developed economies and the focus is now not so much on the lower income groups becoming better-off but on inequality itself. There are a few reasons for this:

1. The book entitled – The Spirit Level: Why More Equal Societies Almost Always Do Better – claims that health and social problems (physical health, mental health, drug abuse, education outcomes) are substantially worse in more unequal rich countries.

2. Some economists suggest that the financial crisis was caused by politicians encouraging the lower income groups to take on more credit to try and reduce the income gap.

3. Inequality perverts politics and Wall Street has too much influence in Washington

What needs to be done?

1. Governments need to keep their focus on pushing up the bottom and middle rather than dragging down the top: investing in (and removing barriers to) education, abolishing rules that prevent the able from getting ahead and refocusing government spending on those that need it most.

2. Governments should get rid of rigged rules and subsidies that favour specific industries or insiders. Forcing banks to hold more capital and pay for their implicit government safety-net is the best way to slim Wall Street’s chubbier felines.

This may be useful for NCEA Level 3 AS 3.3 and A2 Development Economics and standard of living.

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