6.7.2.4  Mechanisms to Reduce Economic Inequality

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Government attempts to directly control disparities in income are dysfunctional (3.3.6), but politicians can use their economic powers to take other steps to reduce overall economic inequality:

·      Benefit payments (6.7.1.3) can help the poorest in society.

·      An increase in the minimum wage (3.3.3.3) reduces low-paid workers’ dependence on taxpayer-funded benefits.

·      It is possible to make changes in corporate governance, to rebalance the negotiations by which wealth is shared (3.5.6.3).

·      If more services are provided by government, and are available to everybody, fewer people have to do without those services – so there is less inequality in people’s standard of living (6.7.1.1).

·      Government spend has to be paid for by taxation and, if the taxation is progressive (3.2.4.1), the effect is redistributive: reducing the differences in disposable income between rich and poor.  Tax increases are possible: the wealthiest 1% of Americans now pay less tax than they used to,[1] and empirical data indicate that higher taxes on the wealthy haven’t reduced economic growth in practice.[2]

Such steps to reduce inequality can be effective: Sweden’s society shows levels of social well-being that are comparable to Japan’s (which has less difference in pre-tax income).[3] 

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