Income inequality is one of the most widely debated topics in our current political climate. My stance in this essay is I agree with the statement that income inequality is a problem, as I believe it can threaten our democracy. Before that, I will first explain the libertarian arguments for income inequality such as it improves living standards and is fairer than a redistributive society. At the same time, I will highlight the belief that income inequality is not a problem, but inequality in opportunities is. Next, I will reiterate my stance that income inequality is problematic because it lowers electoral participation and creates a disproportionate split in political powers between the rich and the poor. Then, I will argue that measures to limit people’s earnings such as maximum wage can be used to control and alleviate income inequality.
Firstly, some libertarians believe that increased income inequality is not a problem because it can improve one’s living standards, especially those in the lower ends of the income gap. According to John Rawls’s difference people, income inequality can be justified if it benefits the least affluent class in a society as well. For example, income inequality (caused by economic growth) can result in an increase in job opportunities or wages, which will lead to an increase the absolute incomes of the poor. This was observed in Ireland during the late 1980s till 2000s, where a rise in the top 1 percent’s income rose is followed by a steady increase in the incomes of those in the lower ends of the income gap. Hence, income inequality can be beneficial because it allows people to improve their standards of living (through better wages). Moreover, studies have shown that an increase in the pay of wealthy entrepreneurs (one of the main contributors to the income gap) will make them more efficient which in turn will result in more jobs for workers in the middle to lower income groups. Therefore, this shows that income inequality is not a problem because it leads to an increase in society’s living standards as a whole.
In addition, libertarians argue that rising income inequality is not a problem because it is fairer when compared to an income redistributive society. As long as the process in which income is acquired is just (such as through wages or winning the lottery), then it is fair for the individual to retain their income, even though it leads to higher inequality. This is because people should have the autonomy to influence their own incomes. For instance, individuals are compensated with high (or low) incomes based on the services that they provide. As a result, skilled professionals such as doctors and lawyers have higher pays than non-skilled workers, but one would argue that the higher pay compensates for their longer years of education. Therefore, it is unfair to them if their income is redistributed through progressive taxes to help lower income individuals. This shows that a society with income inequality is not problematic because it is fairer than its alternative. In retrospect, many would argue that inequality in opportunities, rather than income inequality, is the actual problem. People cannot control the circumstances that they were born in (such as coming from a rich or poor family), thus the inequality gap should not be blamed. Therefore, libertarians argue that the main issue lies in the lack of opportunities for those from the lower-ends of the income gap to improve their conditions, such as better access to education or healthcare. Hence, they believe that policymakers should shift their concerns towards providing more equal opportunities (especially for the poor), rather than focusing on income inequality.
With that said, I believe that the downsides to income inequality outweighs its benefits, thus making increased income inequality a genuine problem. One of the downsides of income inequality is it lowers electoral participation, especially from those in the extreme ends of the income gap. This is because some individuals from the lower income households lack the proper resources to participate in elections. For example, a lower income individual might not be able to get the day off to go vote on a weekday, or lack the money to cover transport costs to the polling station. This was evident in the United States because as income inequality grew throughout the years, the electoral turnout decreased for every consecutive election from 1960 to 2000. This phenomenon is problematic because it decreases the efficiency of elections in ensuring a fair democracy that represents everyone, regardless of their socio-economic status. Concurrently, the large income gap lowers electoral participation amongst those in the highest income quartile as well, because they lack the incentives to participate. They are disincentivised to vote because policies and decisions would less likely affect them on a large scale, as compared to other citizens from the middle to lower income groups. The negative relationship between income inequality and electoral participation can also be observed between countries. For instance, the likelihood of abstention in more equal countries such as Sweden is 12%, but it is 26% in United States which has a wider income gap. Therefore, this shows that increasing income inequality can be detrimental to a state’s democratic process because it lowers electoral participation.
Most importantly, I believe increased income inequality is a genuine problem because it can result in disproportionate political power between the rich and the poor of the income gap, which can become a threat to the democratic process of a state. This is because a rise in one’s income and wealth can lead to an increase in one’s political power, where they can influence political decisions to act on their interests. Again, this reduces a state’s efficiency to represent its constituents fairly, because if a government only caters to the needs of the rich and wealthy, then this could be extremely harmful to those with lower incomes as their interests are set aside. For example, a study by Martin Gilens showed that the United States government is more responsive to individuals with higher incomes as compared to those with lower incomes. At the same time, this would lead to a disproportionality in political power because poorer individuals are discouraged to participate in political discussions as they are convinced to abandon their preferences because they believe that their concerns are not being represented and their voices do not have any bearing on the political floor. As a result, the decline in political engagement from individuals in the middle to lower classes will reinforce the disproportionality in political power because it would lead to an advantage for richer individuals to advocate their own interests. Thus, this shows the problem of income inequality and how it can become a major concern for a state’s democracy because it leads to an unequal dichotomy in political power which favours the rich.
Following this, I believe that measures to limit people’s earnings can be an effective solution
to increasing income inequality, such as the introduction of a maximum wage policy. Maximum wage can be defined as a policy which can limit a person’s income. Such a policy can be effective to curb income inequality especially between major corporate executives and their workers. This is because by introducing a wage ceiling (such as a entrepreneur to worker pay ratio), this would create an incentive for top executives in a company to ensure better working conditions for their workers, including an increase in wages. Similar policies to limit people’s earnings has been implemented before in the United States under Franklin D. Roosevelt’s administration in the form of an extensive tax rate. In 1944, the tax rate on income above $200,000 was 94% and it stayed roughly around 90% for the next two decades or so. During this time, the United States was significantly more equal where the bottom 90% of the income groups acquired two-thirds of the nation’s income by 1970. Hence, this sets a precedent that shows that income inequality can be remedied by setting a policy that limit’s people’s earnings through maximum wage or an extensive tax rate on the wealthy.
To conclude, I believe that the negative consequences of income inequality outweighs its benefits, thus solidifying the statement that increasing income inequality is a problem. Although there are some legitimate points made in favour of increasing income inequality, I find that the arguments are inherently weak, because there is minimal data that supports their claims (income inequality improves living standards and is fairer). With that said, I agree that inequality in opportunities should be a rising concern for policymakers, but this does not mean that income inequality is not a problem as well. Hence, I stand by my initial position that increasing income inequality is a serious problem due to its consequences towards a state’s democracy, as it lowers electoral participation and creates a disproportionality in political power between the rich and the poor. Lastly, to resolve income inequality, measures to limit people’s earnings, such as a maximum wage, can be considered.