MANAGEMENT

Inequality and income distribution

Inequality and income distribution

IntroductionThe main problem faced by the developed nations like U.S and Europe in the coming years is the decrease of supply due to lack of demand (Financial Times, 2011). There is nothing that could increase in the pay, living standards and confidence of different class of the society unless there is a consequent increase in demand of things. However, it would be wrong to falter all our problems to a single macroeconomic solution. The evolution from the agrarian to an industrial economy has implications in the future; likewise, the shift from industrial to knowledge economy has its effects. The demand for the wealth redistribution is mainly a political issue and the policies that exist are highly challenged in the present economic crises. There are many governments that are facing increase in their budget deficits and less is questioned about the sustainability of their welfare systems. This becomes a challenging task when the inequalities in the economy rise. Therefore, it becomes necessary that relationships between the level of inequalities and the demand for redistribution are checked thoroughly.

Discussion

Many theories suggest that relationships between inequalities, welfare, attitudes and policies of redistribution are important to counter the issue of income inequality. A system suggested by Meltzer Richard addressed the issue by asserting that larger levels of inequalities in a certain country will predict large levels of redistribution since the individuals with low income are on the increase. The political wing of America contests the idea of Liberals that the increase in unequal distribution of income lays great danger to the social structure of the economy. However, the counterargument made by the conservatives is that the poor and the middle class are much better off today than it appears (Thomas, 2013). The stagnating incomes of these classes show that they have money to spend on the basic necessities and the leftover could be used as flexible spending. This theory suggests that the money spent on goods and services by the rich, middle and poor citizens change less even after the income inequality worsens. This theory is based on consumption inequality.

There is a strong shift in the market reward in a minority of citizens as compared to the other citizens living in the same country. According to the budget presented by congressional office, it was showed that the top 1% of the U.S population had an increase of 275% in their incomes from 1980 till 2007. The income of middle class only grew by 40% in the same time period. The ones who remain calm in the face of these shifting trends and favour these policies that would disproportionately cut taxes at the high end. The inequality of incomes is acceptable until it does not limit social mobility across generations. The inequality figures in incomes are slightly lower than the inequality in a single year. However, according to the research in intergenerational mobility the U.S is now poor by global standards and in the coming years is not showing any signs ...