Principles of Economics, 6th Edition by Mankiw N. Gregory

Author:Mankiw, N. Gregory [Mankiw, N. Gregory]
Language: eng
Format: mobi
Publisher: Cengage Learning
Published: 2011-02-09T16:00:00+00:00

QUICK QUIZList three policies aimed at helping the poor, and discuss the pros and cons of each.

Conclusion

People have long reflected on the distribution of income in society. Plato, the ancient Greek philosopher, concluded that in an ideal society the income of the richest person would be no more than four times the income of the poorest person. Although the measurement of inequality is difficult, it is clear that our society has much more inequality than Plato recommended.

One of the Ten Principles of Economics discussed in Chapter 1 is that governments can sometimes improve market outcomes. There is little consensus, however, about how this principle should be applied to the distribution of income. Philosophers and policymakers today do not agree on how much income inequality is desirable, or even whether public policy should aim to alter the distribution of income. Much of public debate reflects this disagreement. Whenever taxes are raised, for instance, lawmakers argue over how much of the tax hike should fall on the rich, the middle class, and the poor.

Another of the Ten Principles of Economics is that people face trade-offs. This principle is important to keep in mind when thinking about economic inequality. Policies that penalize the successful and reward the unsuccessful reduce the incentive to succeed. Thus, policymakers face a trade-off between equality and efficiency. The more equally the pie is divided, the smaller the pie becomes. This is the one lesson concerning the distribution of income about which almost everyone agrees.

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