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Is equality an issue for the Economists, or should the positive and normative aspects of equity be left to Philosophers and Sociologists?

The rich perform better when they are paid more and the poor when they are paid less. Galibrath.
Method: Drawing on your knowledge of economics and the material provided answer the above in about 1500 words.

Economics is the study of how society decides what, how and for whom to produce. When dealing with the equality same questions can be raised: equity of what, equity to whom and how can we achieve equity. Equity is also a matter that should be solved by society together in a uniform way, but it is not directly concerned with what to produce, more like who should receive the benefits of production. Thus equity is not directly relevant to economics defined by this way. However it can affect production indirectly (more precisely inequality is said to decrease productivity) and thus no economies can surpass the issue completely.

One of the 3 points that philosophers are concerned is to examine specific ideas that have general, abstract and philosophical implications. Research into inequality is one of the branches of sociology. So philosophers should be able to solve the equality problems and causes theoretically and sociologists should be able to work out the remedies for inequality (answer the question how?). But whether and to what extent should we use these remedies to maximise welfare and efficiency and how important is it relative to other economics aspects is a question that concerns economists and will be the theme of my essay. More precisely there is some evidence that moderate inequality raises efficiency (Galibrath), but it reduces welfare (socialists), so exactly how much welfare should we sacrifice for the efficiency is a relevant economics question.

But before I must interpret the equality a bit further. Equality is easily measured by the income differentials of people and can be expressed as a Lorenz curve:

In this case however the equality would mean that everybody must be paid equally. But the starting positions of different individuals differ, so it would be unthinkable to force a policy that would equalise the pay completely as a consequence. A. Sen has defined another mean of answering equality of what? question. He thinks the differences in short-falls to what people could possibly attain should be minimised, however the potential attainment is measured. The real potential should be used, not the one that the individual concerned could be aware of. So the son of Bill Gates should be much better off than my son for the equality to still exist, but neither of them should get everything they possibly can, both should fall short of this by the same proportion.

This is a much better view, but I think needs a bit further modification. As Sen mentioned the potential of poor and disabled could be greatly increased, for example by giving the blind free electronic reading devices. Of course others have to pay for this, but the sacrifice will be relatively smaller. Still for it to happen better off must receive a compensation. This could be the allowance for them to get closer to their potential, as in real terms this would mean a much larger improvement when a well-off person attains 87% of his potential instead of 85% than when a disabled person would do the same. This would mean worse-off loosing, but as said before, they are loosing out from the potential that increased by far more (same real amount makes proportionately larger change to the poor).

The question to whom? although being potentially a source of much conflict has hardly ever been so. At present time equality should exist between all humans - men and women, only children having fewer opportunities, and everybody is happy with that. This view was obviously different centuries ago, but the change has been gradual and relatively painless.

There are two contradicting views about equality existing in economic circles. One says that when rich get richer they lead the way to the poor to get wealthier as well. So what a couple of decades ago was a luxury is now considered to be essential. It has been argued that the capitalist system works best when there are threats (poverty) and opportunities (wealth) to motivate people. Someone has to take chances and must be able to receive a reward. Some form of insurance could exist, but it must by no means be 100% (i.e. redistributing all extra income should not exist).

Other view goes that the widening of income gap is a potential source of problems in today's economy. Poor will get poorer albeit the national income statistics show growth trends. They will get excluded from the society and their income in real terms could fall as rich bid up the commodity prices and inflation will be higher than their wage increases.  Differentiation inside same classes among people with very similar background has been a source of much concern. The winner-takes-it-all society is said to fail in long-term as the chances to win get too small and motivation will fall (however, National Lottery is gaining popularity with the chances being exactly half of the ones in real life, so there should be a scope for much extra differentiation of national income before things get critical). Too high wages will not be Pareto efficient as people will start to prefer leisure instead of extra hours of work. Thus state should employ progressive taxation to decrease the inequality.

But people can either invest or consume. Investment would bring extra income in the future, so people who invest will be better off in the long term. Now if consumption levels are forcefully equalised there will be a temptation not to invest and have a free ride. Also if parents have decided to invest their children should be better of than the rest, otherwise what's the point of investing long-term. There is a theoretical possibility that all people would reach to an agreement not to take free rides and cheat the system and keep their motivation and the same time being secured, so in theory they could take more risks and become more productive. This does not seem to work in practice. But even if we abandon this equalisation system and allow people with better mental and physical abilities and larger starting capital to become better of, then there is still a large amount of luck involved. This, to my mind, could be subject to equalisation, so that the few lucky solicitors would not absorb most of the money firms are prepared to pay for solicitors. On the other hand most of the major inventions have been lucky incidents, without luck society could stagnate.

It is very hard to find any positive evidence for either equality or inequality, because tests with inequality are extremely hard to carry out and require a lot of time. So most of the argument is based on normative statements, that are not very favoured by economists. However politicians have historically been much more open to normative arguments. Both of these views about inequality are existent among both major parties, with Conservatives supporting more capitalist, free and unequal society and Labour objecting it. As Conservatives are on power now the society is getting more unequal. What I am trying to say here is that it has been proven economically that there are much more important factors than inequality affecting the output (inflation). To me it seems equality is much more an issue of politics than that of any of the three social sciences mentioned in the headline. Policies concerning inequality will have large impacts on individuals, but the net effect to a society will be a lot smaller (although there are fewer winners the losers do not lose very much). So it is best for the general public to determine whether there are more people who vote for the equality with the hope of getting better or opposite and the whole issue of inequality is best left to politicians.

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