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.
Redistribution of incomes or wealth increases consumer satisfaction among the poor. A dollar to a poor person provides more satisfaction than it does to a rich person. Thus, taking a dollar from the rich and giving it 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, the argument is that 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 in a free market economy are:
1. Greater incentive to work hard.
Inequality as a result of a free market economy provides incentives to work harder and more efficiently, as the rewards are generally greater. This leads to more economic growth, increases a nation’s wealth, and raises a country’s overall standard of living (including for the lower income households).
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. These new products initially are usually sold at high prices, but eventually come down in price as technology improves and mass production leads to cost of production decreases. This means that eventually lower income households can also afford to buy these products (for example, televisions, smart phones, computers, and soon, electric vehicles).
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, JP Morgan, Andrew Carnegie, Thomas Edison, John D. Rockefeller, and more recently, Apple’s Steve Jobs, Microsoft’s Bill Gates, Facebook and Instagram’s Mark Zuckerberg, Blog guru Ariana Huffington, television entrepreneur Oprah Winfrey, music legends Jay Z and Beyonce, Amazon’s Jeff Bezos, Google’s Larry Page and and Sergey Brin, and many others have helped to advance our economy and standard of living 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 this person’s own well-being, but also to the well-being of the economy as a whole. In order to keep taxes reasonably low and optimize the incentive to work and innovate, both Ayn Rand and Adam Smith strongly opposed extensive government welfare programs. Instead, they supported the idea of voluntary charity donations to help those in need.