Economic Inequality and the Nation

This chapter analyzes the role of system-wide factors in transforming existing inequality into unacceptable forms. It highlights how differences in initial economic conditions and the structure of credit markets can lead to unbearable inequality. It then emphasizes the role of national policies—particularly taxation and minimum wage laws—in either mitigating or exacerbating inequality. Tax avoidance, often used by the wealthy, highlights how political and institutional decisions can favor the rich and contribute to intolerable disparities. A weak institutional setting enables practices such as state capture, often carried out through coercive or extortionate forms of corruption, deepening inequality and turning it into a structural injustice. Macroeconomic shocks disproportionately harm low-income households, potentially creating a vicious cycle where inequality worsens economic downturns, which in turn deepen inequality. Finally, the psychological effects of living in poverty—such as stress, present-focused thinking, low self-efficacy, and risky decision-making—further entrench economic hardship. In extreme cases, this may lead to behaviors like gambling and fatalism.