A world of differences

5 Conclusion

Inequality arises along multiple dimensions, including income, wealth, access to quality education, environmental quality, and public safety. There is no perfect way to measure it, but even imperfect measures can be very useful in comparing changes in inequality over time or differences across space.

Some degree of inequality may be necessary in order to provide incentives for the utilization of talent and the contribution of effort. Performance bonuses in firms, for instance, are designed to provide such incentives. Inequality arising from differences in talent or effort—for instance the high earnings of star athletes or bestselling authors—are often tolerated. But inequality in access to basic needs, such as good health and quality education, can prevent the flourishing of talent and blunt the rewards for effort. Extreme inequality in income, regardless of source, can further result in extreme political influence by the rich as well as misallocation of resources.

Returning to the example of Camden and Cherry Hill with which we started, there are many in the former community who could achieve the successes in the latter, if given the right opportunity. The constraints under which they operate are harmful to them, and indeed harmful to us all.

Many of these income differences—seen as rewards for hard work, risk-taking, or creativity for example—are considered by most people to be entirely fair, or at least necessary to provide incentives for a well-working economy. Other income differences—the effects of discrimination, coercion, or accidents of birth for example, are regarded by many as unfair.

Economics can help to address the problem of unfair inequality by clarifying its meaning and causes, and guiding policy-makers who seek to foster a more just society.