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Role of Money in America (Inequality)
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Outline
I. Introduction
a. Attention Getter
b. Thesis Statement: Money is the sole cause of gross economic inequalities in the American society causing disparities in income distribution
II. Economic and Income Inequality in America
a. Economic Inequality
b. Income Inequality In America
III. Production of Money and Inequality
a. Monetary supply
b. Distributive Effect
IV. Inequality through Labor Market
a. Market Determines Wages
b. Interaction between Labor Supply and Demand
V. Financial Sector and Inequality
a. America has large financial sector
b. Firms finance their own business
VI. Inequality through Taxation
a. Progressive Tax
VII. Conclusion
a. Inequality Effects
i. Lowers the rate of growth
ii. Lower quality of education
iii. Health and social problems
iv. Low levels of economic utility
VIII Work Cited
a. Burman, Leonard E. “Taxes and Inequality.” Tax L. Rev. 66 (2012): 563.
b. Galbraith, James K. Inequality and instability: A study of the world economy just before the great crisis.Oxford University Press, 2012.
c. Hoaas, David J., Richard D. Wolff, and Stephen A. Resnick. “Economics: Marxian versus Neoclassical.” (2008): 518-520.
Introduction
Money is the trusted medium of exchange in America. This being the case, money plays a crucial role in the economic sector. The three streams of economy flow including income, expenditure and output are measured in terms of money. This implies that money has a circular flow. The money consumers pay to the retailers passes from the wholesalers, then manufacturers and goes back to the consumers in the end. This is usually in form of income payments such as wages, rents and profits. Therefore, the continuous flow of money is a crucial factor in the growth of the economy. However, money comes with various disadvantages in the society. One of the major societal concerns about money is inequality. Economic inequality is now the challenge in the current American society. The unequal trends tend to blossom in the emerging markets as well as the developed countries like the US. Money is undoubtedly the sole cause of gross economic inequalities in the American society causing disparities in income distribution.
Economic and Income Inequality in America
Economic inequality is the disparity that manifest through various measures of an individual’s economic well-being, groups or countries. From the economical point of view, economic disparity focuses on three main metrics. These are income, wealth and the rate of consumption. The topic of economic inequality becomes significant considering equity, equality of opportunity and equality of outcome. At times, the term refers to the distribution of wealth in one particular period from a cross-sectional perspective. Likewise, it may refer to the cross-sectional changes in terms of income for longer periods. The theoretical foundation of neoclassical economics regards inequality and income distribution in terms of differences in value spearheaded by labor, land and capital. The Marxian economics regards the rising trend in inequality as the automation of jobs and deepening of capital because of capitalism(Hoaas et al, 518). Money has brought in the labor market.
Ever since the 1970s, an American population has continued to experience uneven distribution of wealth. The uneven distribution is even manifested by the wealthiest men who make over $50 Billion annually while the homeless people has equal to nothing. This results to incomeinequality in America because of the wide gap existing between the rich and the poor. Even as the rate of unemployment in The US continues to reduce, the income gap between the rich and the poor remains persistent. Money is the main denominator in the inequality gaps presented in America. People compete due to capitalism and gain wealth faster than others who lack the basis of competition and technological innovation.
Production of Money and Inequality
From the onset, production of money has failed to bring simultaneously uniform changes in the American society. The increased money supply may entail a higher monetary price level while the individual prices may change at different points to a different extend. Consequentially, production of money tends to create winners and losers in equal measure. The winners in this case are the individuals who are capable of utilizing the money at the very moment it emerges. This is because at this point, the price of other commodities requiring monetary valuation is still low. The expenditures, price and total income would gradually increase thereby spreading the money through the economy. The losers in this case are those ones who later enjoy the higher income valuation. The reason behind this is thatthe earlier users who enjoyed previously lower expenses already mandate them to pay higher prices that come because of increased money expenses.
The distributive effect in essence, is independent of weather the individuals are actually spending the additional money or whether the spending incorporates changes in price. The distributive effect of money takes place in every monetary order. In the case of natural valuation based on silver or gold, however, the distributive effect is always limited since the production of money in itself is becomes limited due to increased costs. This situation is completely different in the fiat monetary system existing in the contemporary society. In such a case, production of money is usually overstretched far beyond the level it would benefit a free market. The result of this is that the production affects the redistribution of money and income beyond the reasonable limits of an ideal free market.
Inequality through Labor Market
How the market determines wages is the root cause of economic inequality existing in the market economy of America. Money plays a crucial role in this. Unequal results of market failure characterize imperfect competition, uneven distribution of information and scanty opportunities to acquire the much needed education and skills. The fact that such kind of imperfections exist in nearly every market situation implies that money, being a common denominator in market economies, is by no means close to equality efficiency. That is why in a society being governed by capitalist principles, labor organizations would not control worker’s wages and rather the markets would determine the worker’s wages. Just like any other price of goods and services, wages are a function of the marketing price, which drives inequality. Considering the principles of supply and demand, the race between the supply of the skilled worker and the demand of the skilled worker determines the price of skill. Consequently, markets have the capability to concentrate wealth, pass on the societal environmental costs and even abuse the consumers and workers. For a job where there is numerous skilled labor forces able to work overtime, if there is a competition for a job where only a few people are required, it will result to a low wage for that kind of job. The sole reason behind this is that competition between workers tends downwards in the wage bracket. In essence, the interactions between the labor supply and demand would gradually result in wage level degradation in the society, which would cause a significant impact on the economic inequality.
Financial Sector and Inequality
America as a nation has experienced tremendous growth in her financial sector as well as Wall Street. At the same time, just a meager population claims the biggest share of the country’s economic rewards. The large financial sectors often tend to expect government bailing and thus tend to lend out too much. Most particularly, the banking sectors send excessive credits to the households and thus inflate the instability of the houses together with the assets. They instead do fail to make much investment in the most viable growing companies, which are better in wealth creation (Galbraith, 49). Likewise, the tendency of American firms to finance their own businesses through issuance of tax-deductible debt often leads to riskier investments. Worth noting is the fact that wholesome rewards that are usually available within the financial sector absorb too many people with different talents who could be engaging in different activities. Collectively, these factors tend to cause fund misallocation hence degrading the growth potential. Since those people that are usually at the low end of the earning scale get warded less credit, fewer shares and other assets this translates to disproportionate benefits to the rich hence breeding inequality. These studies together with other cohort studies provide a link between the rising inequality and the expansion of the financial sector in America coming because of money.
Inequality through Taxation
The primary motivation for the creation of individual and corporate taxes was equity. In the article, “Taxes and Inequality, “ Burman argues that a simple lump sum tax could have been the fairest option supposing all people had equal capabilities to income (Burman, 564). The rate at which different people in the society are taxed when compared to the progressivity of the tax system tends to breed inequality. In a progressive tax, the rate of taxation increases while taxable amount continuous to increase. The progressive tax system has top tax rate having a direct effect on the inequality levels in the society. Provided the level income remains constant due to changes in tax regime, it could decrease the inequality level or increase it. At the same time, the application of steeper progressive tax to the social expenditure could result in a more equalized distribution of income earnings across all sectors. However, despite the effects taxation has on the inequality trend, the American government can still change some of the policies to in order to address the trends in inequality. For instance, following the perception that federal tax may be harder to avoid when compared to the state tax, it would be more sustainable to adopt the highly progressive federal taxes.
Conclusion
In conclusion, income inequality lowers the rate of growth by undermining the ability of the poor to stay healthy to accumulate human and physical capital. It may bring far-reaching consequences in the education sector since children from low income households may end up in low quality education systems or even fail to afford education completely. Health and social problems are also the bad effects of inequality. Still, the society may tend to exhibit some lower level of economic utility adoption on the resources meant for high-end consumption in the society. When the society neglects human capital for high-end consumption, then it would derail the growth of the economy. Therefore, through different perspectives dealing with circulation of money right from production, exploitation by the financial sector, taxation and labor market, it is clear that money plays a significant role in breeding inequality within America.
Works Cited
Burman, Leonard E. “Taxes and Inequality.” Tax L. Rev. 66 (2012): 563.
This article examines some of the trends in the economic inequality while considering the significant role tax system can play in reducing the rate. The article begins by providing the historical as well as the international aspect of inequality, it then presents the role taxes can play to mitigate the inequality trend in America and how taxation has changed in the recent past.
Galbraith, James K. Inequality and instability: A study of the world economy just before the great crisis. Oxford University Press, 2012.
In this article, Galbraith argues that inequality increases with an increase in the financial sectors and thus countries with larger financial sectors tend to experience greater levels of inequality. He demonstrates that finance is the hidden driving force linking inequality to economic instability. Galbraith tends to challenge the preconceived notion that inequality is due to technological advancements.
Hoaas, David J., Richard D. Wolff, and Stephen A. Resnick. “Economics: Marxian versus Neoclassical.” (2008): 518-520.
In this book, Hoass et al relay some unique and balanced explanation regarding different assumptions, arguments and the logical structure of neoclassical and Marxian economics. To make it simpler, they argue by addressing other extensive aspects of evaluating or making a choices between alternative theories.
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