Optimal Inequality

Part II of Social Economics concludes with the discussion of inequality that began in the previous chapter. The right amount of inequality motivates individuals to strive and create. At the same time, evidence suggests that excessive inequality is harmful to individuals and society. We also know that inequality is largely passed from generation to generation and that many market-rewarded attributes are obtained essentially by chance, primarily through parents. (The role of parents and society in shaping economic success is discussed in detail in Part 3 of this book.) Racial, gender, and class discrimination also play a role in perpetuating inequality. Beyond strictly economic outcomes, economic inequality is correlated with numerous health and social indicators ranging from life expectancy to crime and drug addiction. Poverty is particularly problematic: As one health economist writes, the “negative effects of low family incomes on children’s health become larger as a child ages, with the harmful effects of low income on a child’s health likely to accumulate over the child’s lifetime.“ Is there an optimal inequality? Too much inequality leads to economic and social problems, too little leads to stagnation. Multiple approaches to thinking about inequality are considered, including John Rawls’ difference principle.