After receiving a few not-on-the-blog comments, I guess I should elaborate more on my previous post on income inequality.

First of all, I am aware that no everyone that tries to lessen income inequality does it for economic reasons. A good argument can be made that income inequality can cause political disenfranchisement and even discouragement to lower-income workers. Both are true, but I believe are overstated.

Another thing I forgot to mention is that inequality can have a positive effect on lower-income groups. It sounds silly, I know. However, I definitely see the logic behind such arguments. As a student of economics, I am inclined to see all actions guided by incentives, aka personal desire to maximize utility. Income inequality can act as a positive incentive in two ways to improve the conditions of the poor.

First, a gap between the rich and poor gives the poor an incentive to do something like go to college and increase their human capital. If the income difference between going to college and not going to college was very small, people would be less inclined to take 4 years (or more) off from working to make themselves more valuable to the marketplace. If fewer people are going to college, all of society suffers because good education has positive externalities.

Secondly, the gap between the rich and poor offers positive incentives for rich people. If people were limited to how wealthy they could become, they’d do things like not work overtime or put in that extra time to come up with some great new invention. Thus, the upper bound of the rich-poor gap motivates the most productive of society to fulfill their potential.

I understand that both of the reasons I just gave are based on the premise that people are motivated only by money and that without it they won’t do anything. It’s a broad conception of reality, I know. But it still has a lot of truth to it.

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