income-inequality, wealthI recently saw this video:
http://www.youtube.com/watch?v=HkQ4eOkJIPY
In it Margret Thatcher argues that, even in the face of growing inequality, it is better that we all grow wealthier by even a nominal amount than not growing wealthier at all. What are some good counter-arguments to this?
Arguments against this are usually political rather than economic but here is an economic one.
Marginal utility is lower among the richer than the poorer. For example, a house may provide less utility to a single millionaire as a summer home than it would to a homeless family of five. From this some people argue that as a result inequality reduces the sum total of personal utility.
Some research has suggested a more equal society promotes social cohesion with people more likely to trust each other and even reduces the rate of homicide.
Reference for the homicide correlation
Reference for the trust and social cohesion
Clearly one argument – that I don’t know a formal name for – would be one that relates wealth to truly scarce resources like land.
If you have 10 people, and 10 acres of land, and $10 equally distributed ($1 per person) then on the market each acre will fetch $1.
If you give $100 away unequally: $91 to one person and split the remaining $9 between the remaining 9 people, and reply the scenario now you have one person with $92, and the remaining 9 people with $2. If all of the resources are focused on land, the price-per-acre is now $11 (original $10 + $100 distribution / 10). In this scenario one person can buy 9 parcels, and the remaining 9 are forced to fight over a section of the 10th.
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