To Reduce Inequality, Use Well-Structured Regulations to Make Markets Work Better for Everyone

Source: Arthur MacEwan, Scholars Strategy Network, Basic Facts, December 2014

Few are prepared to suggest that any good comes from rapidly rising economic inequality. Studies show that the greater the inequality, the weaker the social cohesion at virtually all levels of society. More unequal societies generate more pollution and people living in more unequal societies tend to experience worse overall health, higher rates of violent crime, and shorter lives. Even more worrisome are the corrosive effects of extreme economic gaps on equality of opportunity and democratic governance. Differences in income and wealth translate into dramatic differences in political power.

Consensus that rising inequality is problematic does not carry over into agreement about proposed remedies. Almost every economist and politician has his or her own ideas about what to do. Judging from recent public discussions, the step with the broadest support involves raising taxes on people with very high incomes and great wealth and using the resulting revenues to improve the economic position of middle class and poor people. For example, tax revenues could be used to increase funding for public education from pre-kindergarten through college. …

….The basic point is straightforward: the choice we face is not between regulated and totally unregulated markets. Governments always intervene and use laws and regulations to shape markets. The questions are how interventions are designed and to what effect. As Americans grapple with the harmful effects of rising economic gaps, we have the power to choose policies that can encourage the market to limit inequality.