Would We Be Better Off Financially With Less Inequality?

It’s not a moral question. It’s an economic question.

Income inequality. It’s been studied, analyzed, punditized, pontificated upon for generations, across geopolitical boundaries, party lines, religious persuasions. But it’s not an issue of morality, despite the fact that decent, normal people understand the unfairness of serfdom, slavery, and having had their careers, jobs, and communities destroyed by capitalism. Even monkeys understand unfairness.

Would the world, would the U.S., be better off with a smaller inequality gap? If unequal distribution of wealth and income hinders growth, what solutions to that problem would do more harm than good? What solutions would make the economic “pie” bigger for all? (Look out. That is a trick question, loaded with unexamined assumptions.)

Some amount of inequality is inherent in market economies. It tends to keep those economies rolling by providing incentives for investment and expansion. But naturally, too much inequality undermines growth. (Careful, another trap with unexamined assumptions.)

Higher levels of income inequality increase political resentment, discourage trade, hiring, and investment, lead to dysfunctional societies, class warfare, armed violence, and all the other health and social ills herein incorporated by reference. Lord Keynes was the first economist to show that income inequality can lead households with less income to increase borrowing to make ends meet, until they can no…