Advantages of Income Equality

Advantages of a system of income equality are

1. Less use of natural resources.

There is generally less use of natural resources and less conspicuous consumption as incomes and the standard of living in countries with equal incomes is lower.

2. More consumer satisfaction among the poor.
Equality increases consumer satisfaction among the poor. A dollar to a poor person provides more satisfaction than it does to a rich person. Thus, taking from the rich and giving to the poor increases satisfaction. The only caveat with this statement is that if equality leads to a low standard of living among all groups, there will be no money to distribute from the rich to the poor (there will be no rich).

3. More political equality.
In a system of inequality, poor people generally have less political influence, because they have less opportunity to contribute to lobby groups, political fundraisers, and campaigns. When there is equality, everyone has the same economic influence.

4. Fewer incentives for corruption and illegal activities for financial gain
In an economic system in which incomes are low and more equally distributed (typically in a non-free market system), temptations to break the law for financial gain are less prevalent. In economies with higher levels of income inequality, the financial rewards for cheating and breaking the law (if the person or business is not caught) are greater. For example, if a person in a country with a high average standard of living knows that by breaking the law it can earn an additional $10 million, the temptation for this person to engage in this kind of behavior is great. With the ease of international cyber crimes these crimes can now be committed by persons from any country (even persons who live in countries with non-free markets and/or a more equal distribution of incomes).

Advantages of Income Inequality

Advantages of a system of unequal incomes are:

1. Greater incentive to work hard.
Inequality provides incentives to work harder and more efficiently, as the rewards are generally greater. This increases a nation’s wealth and overall standard of living.

2. Greater savings and investments.
Inequality permits greater savings, because there are more wealthy income earners. Higher-income earners save more than lower-income earners. Greater savings frees up capital for businesses to borrow funds for more investments into technology and capital expansion.

3. More high-quality and innovative products.
A nation with a higher standard of living has more opportunity to stimulate the production of new, high-quality, innovative products.

4. More resources.
A higher standard of living allows a country to better help needy persons. There are more jobs, and average earnings are higher. There are also more people who can afford to and will give to charities. In addition, government tax revenue is higher, so there are more resources for a country’s essential spending, such as defense, providing for a legal system, infrastructure, education, health care, and curbing pollution.

The Incentive to Work and Innovate

The ability to earn more than others helps inspire people to work harder and strive to innovate and produce more and better products. Without greater incentives for successful work, there will be dramatically less production, innovation, and wealth. If people who do not work, or do not work hard, receive the same or similar rewards as people who work hard, research, and invest significant time and resources to produce, the latter loses motivation to be productive. The result will be that everyone works considerably less, and few people are inspired to innovate. This is what happened in the former Soviet Union, and is currently contributing to the economic stagnation in communist countries such as Venezuela, Cuba and North Korea.

In industrially developed countries, entrepreneurs such as Henry Ford, John D. Rockefeller, and currently, Microsoft CEO Bill Gates and many others have helped advance our economy through their inventions in various industries. In large part, they were motivated to do this because of the rewards associated with their efforts. This may seem selfish, but they have also helped many others live more comfortably and obtain jobs. Ayn Rand wrote about the virtues of this selfishness in her bestseller “Atlas Shrugged”. Adam Smith’s invisible hand concept describes that the selfish efforts of each entrepreneur and each worker not only contributes to her/his own well-being, but also to the well-being of the economy as a whole. Both philosophers/economists supported the idea of voluntary donations to help people in need.