7. Assumption
ALL NATIONS STRIVE TO ACHIEVE THE FOUR MACROECONOMICS
OBJECTIVES:
SUSTAINABLE ECONOMIC GROWTH
LOW INFLATION
EQUAL INCOME DISTRIBUTION
FULL EMPLOYMENT
10. INTRODUCTION TO INCOME INEQUALITY
• Income inequality is when the incomes earned
in a nation are not proportionally equal
• In
communist / socialist oriented economies,
the incomes are distributed equally and not by
measure of work input
11. WAYS FOR GOVERNMENT TO
CHANGE INCOME INEQUALITY
• Progressive vs Regressive income taxes
• Flat taxes (ex. VAT)
• Transfer payments
12. THE GINI COEFFICIENT
• “A numerical measure of the level of
income inequality in a nation. Measures the
ratio of the area between the line of equality
(the 45 degree line) and a nation’s Lorenz
Curve to the total area below the line of
equality. The closer the coefficient is to one,
the more unequal a nation’s income
distribution. The closer to zero, the more
equal the nation’s income is distributed.”
- Welker's Wikinomics
13. ARGUMENTS FOR INCOME INEQUALITY
• Meritocracy (incentives to work)
• No government intervention in wages (all G Intervention leads to a DWL)
• Innovation should be rewarded
• Investment (opportunity cost & risk) should be rewarded
• More disposable income and more wealth leads to an incentive to create
jobs through investment
14. ARGUMENTS AGAINST INCOME INEQUALITY
• Diminishing Marginal Utility of Income
• Social friction
• Less Equity
19. CASE STUDY: UNITED STATES
• Key Figures
• 480kprivate boats, 223k private planes vs. 44 million people dependent on
food stamps
• 35k of 84k UHNWI live in US
• Jon
Paulson earned salary of all 80k NY public teachers together for the
next three years in one year
• Gini Coefficient 45
20. CASE STUDY: UNITED STATES
• Social frication
• 1% vs 99%
• Occupy Wall Street
• 44 million people dependent on food stamps
21. CASE STUDY: INCOME INEQUALITY AFTER THE FALL OF
THE IRON CURTAIN
• Iron Curtain fell in 1991 - following the end of the Cold War
• Was set up as a ideological barrier between Western and Eastern Europe
• In Eastern Europe - Communism
• In Western Europe - Free Market Economies
• Before fall of Iron Curtain: Low GDP (PPP) per Capita & Low Gini
• After fall of Iron Curtain: Increasing GDP (PPP) per Capita & Higher Gini
22. % OF INCOMES EARNED BY HIGHEST 20% OF POPULATION
23. % OF INCOMES EARNED BY HIGHEST 20% OF POPULATION
30. CASE STUDY IRON CURTAIN
CONCLUSION
• Gini Index increases (more inequality)
• Resulting in overall increase in income per person (PPP)
• Higher percentage of total income earned by top 20%
31. So far we can conclude that:
KEY CONCEPT
THERE IS A TRADEOFF BETWEEN
NATIONAL INCOME AND EQUALITY
34. CASE STUDY: JAPAN & SWEDEN
DIFFERENT APPROACHES
• Japan
• Comparably low income taxes (up to 35%)
• Legislature to minimize CEO to Worker pay ration (16:1)
• Various legislature to reduce incomes pre tax
• Sweden
• Highly progressive income tax system (up to 65%)
• Generous transfer payments
• Benefit schemes
35. Now we are confused...
KEY CONCEPT
THERE IS NO TRADEOFF BETWEEN
NATIONAL INCOME AND EQUALITY
37. CONCLUSION
• Presented evidence to confirm and refute our KC
• No distinguishable relationship (too many factors determining economic
success or failure)
• Government play a key role in redistributing income
38. FINAL THOUGHTS
• Income inequality is not an issue as long as:
• No absolute poverty exists (only relative poverty)
• Income inequality arises due to merit and not due to unequal
opportunity
• Income gaps are not forever increasing
39. Freeland, Chrystia. Plutocrats: The Rise of the New Global Super-rich and the Fall of Everyone Else. New
York: Penguin, 2012. Print.
Maley, Welker Sean, Jason. Economics: Developed Specifically for the IB DIPLOMA. N.p.: n.p., n.d. Print.
Skidelsky, Robert, and Edward Skidelsky. How Much Is Enough?: Money and the Good Life. New York: Other,
2012. Print.
Stiglitz, Joseph E. The Price of Inequality: [how Today's Divided Society Endangers Our Future]. New York: W.W.
Norton &, 2012. Print.
http://www.google.com/publicdata/directory
http://www.npr.org/blogs/money/2011/03/09/134370052/the-tuesday-podcast-money-buys-happiness
http://www.npr.org/2011/10/29/141823761/the-income-gap-explained-with-candy-corn
http://www.economist.com/blogs/graphicdetail/2012/05/ratio-ceo-worker-compensation
http://thinkprogress.org/politics/2010/07/08/106536/japanese-ceo-american-sixth/?mobile=nc