Economic Policy, Growth Trade Off and Social Structures

Economic Policy, Growth Trade Off and Social Structures














Economics Policy, Growth Trade Offs and Social Structures

  1. The distribution of income in the United States has been unequal for a long period since the advent of the era of innovation in the United States. The United States has been characterized by a slow income growth, and wage stagnation mostly because of unequal distribution of wealth where few Americans enjoy the rewards of economic growth. The economy showed signs of improvement of living standards in the last few decades. However, stringent economic policies mostly favour those with the most income, political power and wealth. Incomes and wages of many Americans today are much lower than the 1990s. Income and wage inequality has also risen sharply in the last thirty years. This inequality is to blame for wage stagnation and for the failure of middle and low-income earners to reap from the benefits of growth. Economic policies have also contributed to the increased income inequality as they allow inflation, which in turn erodes the purchasing power of the minimum wage earners. The neoclassical view of income simply explains the unequal distribution of income in the United States over time. The neoclassical view is characterized by the assumption that consumers have rational preferences, individuals aim to maximize utility while firms profits and that people make choices and act based on adequate and full information. The wealthy being owners of most of the financial assets maximize on their profits but this does not translate to the middle and lower income earners.
  2. The economic policies being enforced increase wages, wealth and income but do not promote overall growth. The wealthy benefit from increased wages and income but the low and middle class can only benefit from economic growth. Many policies in the U. S. have also allowed trading with the poorer global market, which has resulted in trade imbalances and increased rates of employment for the middle and low-income earners. Minimum wage policies contribute to the increased inequality by reducing the employment of the minimum wage workers and disabling the smaller businesses since they may not be able to increase all the workers wages. Tax policies have also been working in the favour of the wealthy. These policies do not always favour investment of property and thus middle and low-income earners cannot benefit. The groups mainly influencing policy making in the United States are the wealthy class.

According to the neoclassical theory, wages and incomes increase but do not necessarily translate into an overall growth. However, in some instances, inequality may create incentives for innovation, or may be a motivation for the low-income earners to work hard and invest wisely. Innovations have increased over the years despite there being a constantly weak economy. The level of economic growth is still rather low but innovation is still increasing owing to the motivation that low income earners get from the existing income inequality in the economy. In the 20th Century when the Unites States suffered from the great depression, the major challenge was the unequal distribution of wealth. These economies performed dismally as the rich became richer and the poor became poorer. The prices of goods and farm products increased and this benefited the wealthy as they ran the monopoly industries at that time. An economy with greater equality in terms of income distribution usually has a steady and sustainable economic growth. Such an economy expands local markets, enables individuals to advance themselves economically and increases the governments’ ability to purchase better public goods and services. Economies with greater income equality also have reduced inequalities in other areas that may impede growth of the economy. Economic freedom brings about a greater income distribution, which in turn reduces the inequality through economic growth. Economic freedom raises the income share of the poor and lowers that of the rich. It however does not affect the income share of the middle class. In other words, economic freedom reduces the income disparity between the rich and the poor, which in turn increases economic growth. Economic growth on the other hand, raises the inequality of incomes. The trade off between equity and growth is large. Therefore, an economy with rather equal distribution usually has a low rate of economic growth.

  1. C.E.O. compensations vary widely from the average worker compensation in the United States. The neoclassical theory of income distribution suggests that wages and incomes may increase but do not always translate to overall economic growth. C.E.O compensations are usually large and contribute actively to increasing this disparity between incomes. The arguments for the distribution of income relate that increasing the level of equality in the end reduces the overall growth of the economy. This is in line with the neoclassical theory of income. Economic freedom may bridge the gap between the rich and the poor but it does no guarantee overall growth of the economy. The wealth of the nation increases as the wealthiest in the nation take an increasingly larger share of it while the lower and the middle class only get a smaller bit. The distribution of the assets of the United States mostly belongs to the wealthy and this explains why they stand to benefit in instances of economic growth.





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