Inequality In The Long Run Analysis

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Many people have strong opinions—some for and some against—on is inequality important for the American government to address it? One proponent might think that large inequality could cause chaos and harm economy. Another opponent may cite the fact that some wage disparity is necessary for the labor supply. Both the proponent and opponent are acceptable if the inequality is not very high. However, if we do not do something when the income and wealth inequality remains very high, the problems of a divided America can hardly been solved. That is, inequality problem should be addressed in the United States in the future. Piketty and Saez also discuss this inequality problem in their article “Inequality in the long run”, and they provide several ways to address economic inequality. First, we need to notice that when we discuss income and wealth inequality, we mean “the share of total income going to the top decile” and “the share of total net private wealth owned by the top 10% of wealth holders” (Piketty, Saez, 839). Piketty analyzes European as a typical example which has a decrease of wealth-to…show more content…
He thinks the decrease of the wealth-to income ratio can explain the decrease in inequality. Furthermore, the decrease in savings can help shrink the inequality, and we can prove it from the Harrod-Domar-Solow formula. The formula tells that the wealth-to-income ratio (or capital-to-income ratio) equals to the long run annual saving rate divided by the sum of the population growth rate and the productivity growth rate (Piketty, Saez, 840). That means the decrease in savings can bring more capitals. However, wealth is not always equals to capital. Joseph Stiglitz in his paper “New Theoretical Perspectives on the distribution of Income and Wealth Among Individuals” talks about the relationship between capital and wealth. He reminds us that: “A large fraction of the increase in wealth is an increase in the value of

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