Inequality is not always a political choice, but reducing it (to an optimal degree) is

Khanh Duong and Nguyen Phuc Van

No 1352, GLO Discussion Paper Series from Global Labor Organization (GLO)

Abstract: In a global context, per-capita income disparities between countries persistently widen, while internal income inequality in most nations continues to increase. Nobel Laureate Joseph Stiglitz argues that such inequality is a result of deliberate political decisions. However, inequality transcends mere political constructs, being influenced by natural and societal laws. For instance, research by Scheffer et al. reveals intriguing parallels between species abundance in the Amazon and human societal structures, while Fuchs and Thurner's study aligns inequality levels in the virtual economy of Pardus with those observed in Sweden and the United Kingdom, suggesting non-political factors in shaping inequality. This multidisciplinary examination reveals that inequality is not solely a product of political choice. Economically, inequality can stimulate short-term growth through increased physical capital, such as savings. However, it also potentially reduces human capital and hinder long-term prosperity. Sociologically, inherited inequality is seen as unjust, yet the principle of fairness - rewarding greater effort - often trumps equality. Anthropologically, hunter-gatherer societies' egalitarianism diminished with increased production and the emergence of economic competition. Rogers et al.'s findings indicate an existential advantage in hierarchical societies over egalitarian ones. Thus, inequality is partly an outcome of natural and societal dynamics. This study underscores the critical role of politics in managing inequality. In modern democracies, the political system is responsible for addressing free-market generated inequalities. This involves striving for an 'optimal inequality,' guided by models like the Boltzmann distribution, to balance stability and inclusiveness. Different distribution patterns can yield diverse societal happiness levels, even under similar inequality and external conditions. This study concludes that an ideal democracy supporting the less privileged enhances societal happiness. Nonetheless, efforts to mitigate inequality face challenges from democratic system flaws, ethical dilemmas, and information disparities between rich and poor.

Keywords: wealth inequality; socioeconomic inequality; optimal inequality; fairness (search for similar items in EconPapers)
JEL-codes: D63 P16 Z13 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-hap
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:glodps:1352

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