Economics of Wealth Distribution

Economics of Wealth Distribution

Explain why policymakers and economists are concerned about how evenly a nation’s wealth is shared or distributed among a nation’s citizens

One of the economic goals that every country has is to achieve economic growth which is an increase in its total value. Countries strive towards achieving a higher economic growth in order to improve the living standards of its citizens and have influence on the world market. When a country’s economic growth is slow, the living standards of citizens reduces and the government faces criticism and opposition as a result (Saastamoinen, 2006).

A country’s Gross Domestic Product (GDP) is the measure of its total annual economic transactions. A rise in GDP leads to economic growth. Per capita is the measure of GDP since it reflects the amount of GDP per head. The higher the per capita, the better the living standards of the citizens are. It can be a quite unyielding exercise to compare GDP for different countries since they have different population sizes. However, economists and policymakers use per capita income to compare the relative or wealth or poverty in different countries (Zorach, 2010).

The manner in which a country’s wealth is divided up is another indicator of economic growth. In most countries, there are few individuals who have a lot of wealth while most of the population is made of poor people. Modern democracies are working towards distributing wealth equally across the populations by all means including welfare. Buts still in the best democracies such as the United States, there is still a huge disparity between the poor and the rich.

Equity is achieved when fairness is observed in all economic transactions. Equity is an important aspect of a fair economy. Most governments have implemented policies to ensure equity. Failure to implement such laws would mean that people would be unwilling to engage in economic activities. .

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Describe the pros and cons of market and authority (government) based economic policies. Provide examples to support your argument

All governments have a responsibility to implement sound economic policies. Normally, different sections of the society have different needs and the needs of one could easily hurt the other. In addition, solving one problem could lead to another.

There is a close relationship between money and politics. The two realms often interact and affect each other in complex ways that are different to tell apart. The state is equipped to shape the economy and therefore it is natural that the state affects the economy. However, the economy also affects the state since a failure by the state to ensure economic growth and fair distribution of resources could easily lead to trouble therefore, a prosperous economy can save a corrupt or incompetent leader.

In an authority economy, the national or central government is responsible for planning the economy. The entire economy is controlled by the central government. In addition the government determines the price of goods and services and also allocates resources. Such economies are deemed inefficient since they totally disregard the laws of demand and supply. In order to cater for markets that are not catered for by the central plan, black markets arise to cater for these unmet demands states with free markets often experience slow economic growth. Although some authority economies claim to be economic equality champions, the elites continue to lead better lives than most of the population (ConnectUS, 2015).

Governments are faced by unemployment, economic depression/recession and inflation struggles. Thus, they have the responsibility to enact policies that work towards overcoming these issues. For several decades now, the United States has been experiencing fairly low unemployment and inflation rates. The irony of this is that low inflation and unemployment rates do not translate to economic growth.

Unemployment is depicted when those people who are willing to have jobs cannot secure them simply because they are not enough jobs for all of them. Every economy in the world experiences unemployment especially when people quit their jobs and take time before they find new jobs. In addition, some people are unemployed for a long period of time. The problem with unemployment is that there will always be individuals in the society who do not have a source of income. This puts this section of the population at the danger of suffering from extreme poverty. High levels of unemployment raise criticism and opposition with the unemployed blaming the government for their situation. During such times insecurity and political instability can be on the rise (Cashell, 2004).

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Inflation is depicted by rising prices of goods and services. Inflation causes a country’s currency to lose its worth. High levels of inflation can lead to economic instability that in turn hinders people financial success. Such situations will easily lead to economic instability. People will always expect their leaders to implement policies that would get them out of such situations.

Governments have a responsibility on their shoulders to balance the effects of inflation and those of unemployment. Inflation can be reduced by reducing the amount of money spent which leads to increase in unemployment levels. On the other hand, unemployment can be reduced by spending more money which can lead to increase in inflation rates. Therefore, balancing the two can be a quite challenging undertaking that one a government has to do. One way of ensuring that unemployment and inflation levels are reduced by avoiding economic recession/depression since it accelerates the two.

References

Saastamoinen, J. (2006). Wealth Distribution and Economic Growth. University of Joensuu, Economics and Business Admin istration. Retrieved 27 March 2017, from http://epublications.uef.fi/pub/urn_isbn_952-458-871-4/urn_isbn_952-458-871-4.pdf

Zorach, A. (2010). Why GDP (Gross Domestic Product) is a Poor Measure of Wealth and Prosperity. Alex Zorach’s Blog. Retrieved 27 March 2017, from https://zorach.wordpress.com/2010/08/27/why-gdp-gross-domestic-product-is-a-poor-measure-of-wealth-and-prosperity/

ConnectUS,. (2015). 10 Significant Pros and Cons of the Market Economy. ConnectUS. Retrieved 27 March 2017, from http://connectusfund.org/10-significant-pros-and-cons-of-the-market-economy

Cashell, B. (2004). Inflation and Unemployment : What is the Connection?. Digitalcommons.ilr.cornell.edu. Retrieved 27 March 2017, from http://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=1182&context=key_workplace

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