Understanding the Impacts of Economic Inequality - Coursework Example

Understanding the Impacts of Economic Inequality (Author’s name) (Institutional Affiliation) Introduction According to Griffin & Pustay (2013), inequality can simply be defined as the variations that can be found in different financial measures of wellness among nations, population groups, and individuals. Economic inequality is also commonly referred to as wealth inequality, income inequality, or the wealth gap. This inequality is often discussed in light of consumption, income and wealth. Economic inequality is usually associated with equality of opportunity, equality of outcome, and equity. Inequality varies depending on economic systems and structures, historical periods, and from one society to another (Peng, 2017). Generally, inequality is brought about by such things as globalization (increased economic interdependence), outcomes in the labor markets, policy reforms, regressive taxation, enhanced technology/ automation/ computerization at the workplace, gender discrimination, ethnic discrimination, natural ability variations, increased acceptance of high salaries for CEOs, neo-liberalism, land speculation, nepotism, plutocracy, and increased legal ownership of businesses and real estate (property), among other causes. Sine time immemorial, economic inequality has elicited mixed reactions concerning its role in the society. Various studies indicate that inequality is harmful to the social, economic and political stability of individuals, populations and countries. For instance, various researches indicate that inequality can prove destructive by retarding long-term growth. On the other hand, other studies seem to imply equality can also be negative, especially when it diminishes the desire to create wealth (take risks) and incentive for productivity. According to such viewpoints, therefore, economic inequality can be useful by spurring innovation in societies which consequently leads to development. This paper briefly examines both these perspectives with the aim of ascertaining which position holds more weight (is more accurate). Statement 1: Inequality and its Effects on Social, Economic and Political Stability The statement is precise concerning the effects the economic inequality can have on the stability and wellness of a people. Economic inequality has been shown to lead to a host of negative outcomes that can severely destabilize even the most stable nations of the world. A skewed distribution of income will hurt growth and its sustainability over time if allowed to persist. In the short-term, certain levels of economic inequality can yield positive impacts on the economic wellbeing of a region/ community. However, in a majority of the instances, inequality, especially that which is prolonged, can stifle growth. High inequality levels translate into higher poverty levels. Poverty results in poor public health and increased crime which in turn stunts the economy. As the wealthy continue to thrive, they are able to ascend to positions of power and legislation (Griffin & Pustay, 2013). They then use such positions to create regulations and tax structures which favor them but continue to hurt the poor of the society. In the wake of such prolonged and supported inequalities, political instability is most likely to ensue as has been the case in various parts of the world in past decades. Such events then discourage the accumulation of capital, enhance the chances of contracts that are state-repudiated, and pose significant threat to property rights (Parkin, 2016). Moreover, inequality (wealth gap) facilitates market behaviors that are predatory, and also enhances rent seeking rates. As a result, economic growth is impeded. Following periods of increased growth in societies that are struggling with economic inequality, growth is consequently hindered as the availability of human capital investments takes a decline (Piketty & Goldhammer, 2015). With very few people having the capital to invest in education and training, scarcity of physical capital follows. Therefore, growth is stalled as it becomes increasingly difficult to satisfy the demands for human capital. In addition, there is an increase in the demand for risky and unsecured loans which leads to the defaulting of loan re-payments, and so on. Inequality also diminishes the health of populations as the poor and impoverished people are prone to enhanced manifestation of various types of diseases. The poor are often generally unable to access healthy food and healthcare services of high quality (Peng, 2017). The results of such inequality are thus high rates of disease and mortality, increased spending on healthcare by poor families, and hence a deepening inequality (poverty). Households with low income are therefore forced to contend with inadequate access to healthy (fresh) foods as diet related illnesses like obesity, kwashiorkor, diabetes, and cancer, among others, become more prevalent. According to various surveys, poor people are more prone to obesity than the wealthy, for example, as the incentive to select poor food options are considerably high for the financially disadvantaged. Generally, unhealthy lifestyles and poor feeding habits due to economic inequality continue to heavily contribute to the ever-increasing expenditures on healthcare across the world (Krugman, Obstfeld & Melitz, 2017). In the end, economic inequality leads to a workforce that is less effective, life insurance premiums that are high, high rates of mortality, poor public services, and an economy that can hardly prosper. Aside from these, several studies have also revealed that income inequality leads to escalated levels of crime. Research studies strongly indicate that crime rates are generally high in nations with high economic inequalities. Firstly, individuals who are economically disadvantaged tend to exhibit hostility and resentment due to the competition for scarce resources (job opportunities) or their desperate economic statuses. In the end, such groups demonstrate greater and consistent propensity for behavior that is criminal (Griffin & Pustay, 2013). Secondly, in societies where inequality is rife, there are often very limited means of legally acquiring resources and wealth for the financially disadvantaged. In most cases, unlawful methods of acquiring wealth often offer better returns compared to the legal methods of wealth acquisition. This leads to greater tendencies towards criminal activities. Thirdly, as the economic inequality between the poor and the rich widens, the rich tend to live in secluded communities with better security and greater police presence, compared to low income areas inhabited by the poor. Consequently, the poor areas with poor security become havens for criminal behavior time after time (Krugman, Obstfeld & Melitz, 2017). According to various research studies, investments in eliminating economic inequality are more effective in curbing crime in these regions than enhancing low enforcement. In addition, political inequality emerges from such inequality as political power is manipulated in favor of the small group of wealthy individuals who can fund campaigns and subsequently dictate their wishes upon governments. Education is also impacted as poor families can barely afford to offer meaningful education to their children (Gaspar, 2017). On the other hand, rich families are able to pay more tuition fees in elite learning institutions to ensure the success of their children. Trust amongst citizens grows cold as family cohesion is also affected due to economic turmoil (Peng, 2017). Economic inequality thus does a lot of damage to a society’s economic, political and social wellbeing. It is a direct affront on democracy and the happiness of individuals, therefore, and has on countless occasions caused severe disturbances to families, communities, nations and regions. Statement 2: Inequality and Enhanced Innovation On the other hand, there are sections of the academia and professionals who argue that economic inequality portends a number of benefits as well, especially in terms of innovation and development. It is argued that inequality can trigger economic growth, with China commonly cited as an example. In the period between 1979 and 1984, for instance, China instituted various initiatives to help stimulate its economy. The outcome was an economic growth of over 10%. However, with the growth also came noticeable increase in China’s economic inequality. Since the 1980s, China has boasted one of the highest economic growth rates across the world even as it simultaneously displays one of the highest wealth gaps in the world (Piketty & Goldhammer, 2015). The economy of the United States also seems to indicate a strong correlation between wealth inequality and economic growth. The 2008 recession, for example, coincided with one of the lowest economic inequality in the nation’s history. Consequently, many have argued that such correlations are evidence that economic inequality can propel growth. It purportedly achieves this in a number of ways. Firstly, when inequality is high, the incentives for entrepreneurship and innovation also increase. Workers on lower wages develop the incentive to acquire superior job positions in systems where executive positions enjoy much higher remunerations, for example. The poor people in the communities thus strive to work hard, invent new products, or start new businesses so that they can join the wealthy group (Griffin & Pustay, 2013). However, in instances where there is a small disparity between the levels of income, individuals with lower incomes have less incentives and motivation to work hard, innovate and move up the economic ladder. This has caused many economists to conclude that any successful economy must inevitably exhibit some levels of wealth disparity among its citizens. According to the economic growth model by Nicholas Kaldo, low investment levels in areas where inequality is low ensue resulting in low total income, low employment opportunities, low levels of consumption, and low margins of profit (Parkin, 2016). Subsequently, higher innovation and investment call for deep pockets and capital in order to be actualized. Therefore, the demand for investment and innovation results in capital concentration. This wealth concentration then leads to the widening of the gap between the middle class/ poor groups and the wealthy class that is capable of implementing the demanded investments. Moreover, many argue that there is greater fairness in societies with pronounced inequalities than those with wealth equality. As mentioned above, they state that it is only natural for unconstrained markets to lead to economic inequality. In order to achieve economic equality, many thus reckon that governments resort to policies (like progressive taxation) which ensure money is taken from the rich and given to the poor. Therefore, such cuts violate property rights as per the neoliberal economic theory (Peng, 2017). According to them, economic inequality is a natural phenomenon and that certain government interference infringes on the moral rights of individual freedom and independence. It is therefore unfair to take hard-earned wealth from the rich and re-distribute it. Even though redistribution stands to benefit the entire society, many argue that it is unfair for the government to take assets involuntarily from the rich without offering any equivalent exchange (Gaspar, 2017). In order to achieve economic equality, the governments must infringe on the rights of the wealthy in the society, which is unpalatable and morally backwards. Therefore, markets ought to be left in their natural state so that they develop as they naturally would into economic inequality which in turn automatically spurs growth, innovation and technological improvements in the society. Conclusion It is a fact from the findings that economic inequality seems to lead to a plethora of different challenges for the social, economic and political wellness of any given region. Among other things, studies and experiences have shown that economic inequality in any society is a ticking time bomb. Economic inequality results in several challenges concerning security/ crime, health, education, family cohesion, trust, democracy (political equality), stress, disease, violence and death (mortality rates). On the other hand, it is also true that there are instances in which economic inequality has led to growth and innovation in communities. Equally, the rich also have the right to own property in any part of the world so long as such are acquired through legal means. Involuntarily taking from the rich and distributing in the society thus presents a breach of such property rights. However, when economic inequality lingers in any given population for prolonged periods of time, the consequences have often been quite devastating and fatal. Economic inequality triggers innovation, but if the society has been modeled in a manner that frustrates the poor while giving undue advantages to the rich, the consequences can be solemn, as has been previously noted. In addition, wealth redistribution can be achieved in a myriad of ways including reduced interest rates for acquiring loans, easy access to loans, youth and women empowerment, improving the standards of education, free education programs, and so on. The negative effects of economic inequality far outweigh and outlast any of its short-term benefits, such as enhanced innovation and incentive to work/ create opportunities. Every human being should be able to live a comfortable, healthy and secure life. It is the mandate of all governments and societies to ensure such. References Gantz, J. (2017). Age of Inequality. Place of publication not identified: Verso. Gaspar, J. E. (2017). Introduction to Global Business: Understanding the International Environment and Global Business Functions. Australia: Cengage Learning. Griffin, R. W., & Pustay, M. W. (2013). International Business. Upper Saddle River, NJ: Pearson. Krugman, P. R., Obstfeld, M., & Melitz, M. J. (2017). International Economics: Theory and Policy. New York: Pearson. Parkin, M. (2016). Economics. Harlow: Pearson. Peng, M. W. (2017). Global Business. Australia: Cengage Learning. Piketty, T., & Goldhammer, A. (2015). The Economics of Inequality. Cambridge (Massachusetts): The Belknap Press of Harvard University Press. Read More