Afternoon Must-Read: Mark Thoma: Inequality in Capitalist Systems is Not Inevitable

Mark Thoma: Inequality in Capitalist Systems is Not Inevitable: “At some point, one I believe we’ve passed already, the benefits of inequality in terms of incentives are surpassed by the costs.

As Joseph Stiglitz argues:

Inequality leads to lower growth and less efficiency. Lack of opportunity means that its most valuable asset – its people – is not being fully used. Many at the bottom, or even in the middle, are not living up to their potential, because the rich, needing few public services and worried that a strong government might redistribute income, use their political influence to cut taxes and curtail government spending. This leads to underinvestment in infrastructure, education, and technology, impeding the engines of growth.

Capitalism is a wonderful economic system, but it is not perfect. Government intervention is needed to soften the impact of recessions, to overcome market failures, and to offset the rising inequality that threatens capitalism’s ability to serve the vast majority of households to the fullest possible extent.