I’ll start off with a quote (paraphrased, don’t remember the exact wording), “Spend what you have saved.” [Warren Buffett]
Familiar I’m sure. Now here’s a picture showing inequality.
Thought exercise: 50% of the population earns twice as much as the other 50%. Exchange positions next turn, those who earned twice as much will earn normal, those who earned normal will earn twice as much. Inequality is still equal but both sets are equally well-off at the end of two turns.
Let’s refer back to the image. The child in the right is able to climb a stair of money because the stair was present. That is, the wealth was available to the child. So if it’s wealth and not income inequality that is the problem, why is most focus directed at income inequality?
There is an automatic assumption made by/for the wealthy, that the only reason that anyone would look at wealth inequality is because they are envious or socialist. That is extremely shallow thinking.
A close inspection of the post – WW2 period in the US till the New Deal terms were repealed show that income inequality was on a slow downward trend and wealth inequality was holding steady. The same period also witnessed growth rates exceeding 4%. That was not an anomaly. The system was designed to function in a way that allowed income in the economy to flow freely without getting locked up in any place. That is what the high marginal tax rates achieved. It prevented the accumulation of excess wealth by those earning considerably larger amounts.
We now know that, over time, wealth concentration has a detrimental effect on social order.
Income inequality has been proven to have a detrimental effect on economic performance making a stronger case for implementation of a fairer taxation policy; with wealth inequality having a negative effect on society, will policymakers finally decide to impose a wealth tax?
Tip: Don’t lose sleep over whether the policy will be implemented.