Socioeconomic Issues: Inequality, Wealth Concentration, and Corruption
Income Inequality
1. Definition
Income inequality is the unequal distribution of household or individual income across the various participants in an economy.
2. Why Does Income Inequality Exist?
- Bank bailouts: If someone manages their money improperly, they will go bust. When someone goes bust, banks take advantage of it and easily earn money.
- Quantitative easing: Central banks are unelected bodies. Money is printed as part of quantitative easing and is created out of nothing. Once printed, it goes directly into the financial sector, making financial assets more expensive. This benefits those who own assets or work with them but does not help most people.
3. Possible Solutions to Solve Income Inequality
- An exemplary and accessible education: A country with an advanced educational base and program has an advantage. Education and training are tools that the poorest segments of the population should use to opt for a better future and income equality.
- Progressive taxes, estate taxes: A fair progressive tax rate—where the wealthiest pay the highest rates and the poorest pay the lowest rates. Closing loopholes, taxing capital gains and dividend income as regular income. This measure is one of the most powerful tools society can use to fight income inequality.
Wealth Concentration
1. Definition
Wealth concentration is the average difference (disparity) between the remuneration for men and women working in the labor market.
2. Reasons for Concentration of Wealth
- In the USA as well as in European industrialized countries, the middle classes are shrinking. However, considering the wealth share difference of the respective middle classes, one can presume that more capitalism leads to a bigger wealth gap.
- In capitalism, those advantaged by birth have more space to use their wealth to create even more wealth, for example, by investing in assets whose prices increase disproportionately to wages. Simultaneously, those disadvantaged by birth suffer because their ability to create wealth shrinks as asset prices rise due to the additional money brought to the market by, among others, wealthy private citizens and central banks.
3. Avoidable Reasons for Wealth Concentration
- One example is the Tax Code, which, despite its vast extent, contains loopholes that companies and people with enough resources can use to pay less tax. Consequently, the lack of received taxes falls back on lower-income taxpayers.
- A central point critics like Dominic Frisby mention is that the tax on wages is too high compared to company tax, inheritance tax, or the tax on owning assets and land. Frisby argues that these tools keep the rich wealthy and prevent less wealthy people from maximizing their wealth by investing in assets.
Corruption and Economic Growth
1. Definition
Corruption is the abuse of entrusted power for private gain. Another definition is where at least two market participants exchange property or goods to earn their own welfare profit, with one obeying the law or the other accepting.
2. Types of Corruption
- Grand corruption: Acts committed at high levels of government that distort policies or the state’s functioning, enabling leaders to benefit from the public good.
- Petty corruption: Everyday abuse of entrusted power by low- and mid-level public officials in their interactions with citizens.
- Political corruption: Manipulation of policies, institutions, and rules of procedure in allocating resources and financing by political decision-makers who abuse their power.
3. Environmental Conditions that Foster Corruption
Corruption thrives if a country’s policies and procedures are unclear, inadequately enforced, or non-existent.
4. Socio-Psychological Conditions that Foster Corruption
Unfettered desire for money or power, with no regard for moral boundaries.
5. Downsides of Corruption
- Political cost: Loss of legitimacy and public trust in politicians (elected representatives using their power for private purposes).
- Economic cost: Unavailable or high-priced essential public resources like water, electricity, healthcare, security, education, etc.
6. Can Corruption Be Beneficial to Economic Performance?
Some studies suggest that corruption may benefit the economy. Positive correlation between corruption and economic growth in Asian countries:
- Bureaucrats may not have enough information or competence to make decisions; corruption can result in a competitive sale.
- Innovative and expensive projects have been created through the corruption of capital.
7. Possible Solutions
- Access to information / right to information (Transparency)
- Cooperation between Governments (common database)
- Code of Conduct (education on legal base)
- Reveal Information (protected by law and incentives)