12.22.2011 Policy Points

Wealth Gaps, Efficiency, and Well-Being

Mark Thoma explains how wealth disparities undermine economic efficiency and social well-being.

This is, of course, an argument for the government provision of certain types of goods through a tax structure that requires the wealthy to pay a larger share of the bill based upon efficiency rather than equity grounds, but here’s the problem. This only works if the rich and the poor live in the same neighborhoods, share the same roads, use the same parks, attend the same schools, and so on. In an increasingly divided economy and society – as in the US in recent decades – the opportunities for mutually beneficial arrangements diminish. If the wealthy do not attend the same schools, live in the same areas as the poor, have special lines at airports, shun public pools, have their own tennis courts, golf courses,  and parks, if they have helicopters to avoid city traffic, their own security arrangements independent of the police – the list goes on and on – then these opportunities  are lost.

Thoma’s article continues:

The more divided our society becomes, and the divisions are growing, the less shared experience we will have. The rich live in one world, the poor in another, and mutually beneficial arrangements between the two groups fail to occur.
And we are all worse off because of it.

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