Posted by: Paul Chiariello | March 8, 2011

Inequality is Both Good & Bad: New Study on US Perceptions of and Ideals for Income Equality

Before I discuss why inequality is both good and bad, I want to point out a new study by two researchers at Harvard and Duke that found that Americans 1) have no idea what the level of inequality is in the US and 2) want there to be less inequality than there actually is and than they believe there is.

The study found that peoples’ predictions of income distribution were widely off (and more equal) compared to the actual levels of distribution and that what they would like them to be.  If you are interested in more than the graph below, click here for a link to the study and some more charts and stuff.

Wealth Inequality

So what does this mean?

First, as is evident in the above graph, people believe that their ideal society is not perfectly equal.  And this is good.  I personally believe that equality is not good in and of itself.  Most people think it is beneficial to engage in trades that will make them all better off, even if one person gains more than the other, i.e. it creates more inequality.  In other words, few would deny a process that lifts someone out of poverty, if it also make someone better off even more so.  There is also the idea of justice that people should have control over their own efforts and rights to their property.  There are lots of ideals that we have that almost necessitate an unequal world.  But in the US, I don’t need to convince many people of the arguments here.  So I’ll move on to the next part.

Second, people also chose, all things considered, a world of equality over a world of inequality.  Inequality is not a bad thing in and of itself, but it leads to other bad things that most people understand as negative for society.  1) It leads to violence, class conflict, discrimination, exploitation, social unrest, crime and a host of other woes.  Homo Sapiens are an extremely social species, and we survive best and happiest by working together.  2) By the law of diminishing returns, every dollar is actually of more value to a poorer person than a richer person.  If you want to get the most ‘good’ out of your dollar by giving it to someone else, give it to a single working mother before you decide to donate to a billionaire.  So a society which is perfectly equally is mathematically maximizing the value of each unit of wealth within it.

Now what do we do?

Well there are lots and lots of options.  To side with the first argument alone and then say that we should ignore the inequality in a society altogether is just as economically, socially and morally foolish as those who side completely with the second argument and say that we should at all costs redistribute everything to the point of perfect equality.

As I’ve tried to point out in a few other posts, people need to understand the world we live in is complex.   And when people side with one of the above arguments or another the world merely falls into one of two hells that follow.

My post on the economics of health care discusses one way in which it is actually much better for a society and economy as a whole (and also in terms of justice) to have a system of redistribution.

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