The Role of the State in Governing Inequality - Essay Example

The Role of the State in Governing Inequality Name: Affiliated university: Date: Part one: Essay Plan Introduction Thesis statement: The topic of inequality is not new in the public domain as it plays a significant role in the social life of the people. Support: Social inequality refers to unequal opportunities and rewards within a group or society. In an effort to understand what contributes to social inequalities, social scientists explore the relationship between identity issues such as gender, class, race and ethnicity. The social scientists use qualitative and quantitative evidence to describe whether these issues are connected or not connected to social inequality. Paragraph 1: what is social inequality and who is affected by this? Support: Unequal distribution of social resources in a society particularly wealth and income because it enables people to achieve their desired goals. Social inequality refers to unequal opportunities and rewards within a group or society. In an effort to understand what contributes to social inequalities, social scientists explore the relationship between identity issues such as gender, class, race and ethnicity. Stiglitz believes that inequality arises from the unequal distribution of wealth and income. Paragraph 2: Inequality is necessary for development of a society Support: Hayek advocates free market with the absence of coercion in his argument for inequalities. The gap between the top class and the poor is normal because it is the functioning of the market Paragraph 3: Hayek; government intervention is not necessary. Support: Government policies and regulations interfere with the freedom of people. Society should be governed by circumstances and not by people. Inequalities are by-products of the innate human nature. The state intervention should be provided when the poor are in danger of starvation. Paragraph 4: Stiglitz; government intervention is necessary. Support: The distribution of wealth and income varies according to different groups of people mainly regarding gender and race. In the powerful nations of UK and US, the economy is held by one percent of the population. He agrees with Hayek that in a market, inequality is inevitable but what worries him is the extreme difference in the world economic system. He blames the government policies on today’s inequality. Conclusion Hayek and Stiglitz view the role of the state in governing inequality differently. To Hayek, inequality is natural and government regulation destroys their freedom and therefore it should be governed by circumstances. Stiglitz believes that inequality is not a natural consequence of the market but an outcome of political forces. Government intervention is necessary to correct inequality Part 2: Essay Inequality is a topic of importance in economy mainly because it is a main determinant of economic development. According to a social scientist, the connection of people influences the level of inequality in the society. They argue that when people are connected, they are likely to accumulate wealth and income, while disconnected people such as the street people are marginalised and barred. The connections and disconnections are part of social factors such as economic and political relationships. For example, street people are disconnected from their homes, family, and job which make them have low income. The social scientists use qualitative and quantitative evidence to describe whether social issues are connected or not connected to social inequality. According to Wilkinson and Pickett, (2009), inequalities regarding wealth and income affects health and life expectancy of individuals. According to Wilkinson, the inequality does not only affect the poor but every member of the society. This assessment compares and contrasts the views of Friedrich Von Hayek and Joseph Stiglitz on the role of the state in governing inequality. Social inequality refers to the unequal distribution of social resources in a society particularly wealth and income because it enables people to achieve their desired goals. Social inequality can also be defined as unequal opportunities and rewards within a group or society. Social scientists use qualitative evidence to explain wealth and income inequality. According to Joseph Stiglitz in his book ‘Price of Inequality’, inequality arises when wealth and resources are distributed unequally. He considers part of inequality to be ‘good’, and he mainly associated this with rent seeking that causes inequality in the financial institutions. Stiglitz defined rent seeking as the collision between the private sector and the government. When this happens, there are some social benefits such as government subsidies, patent welfare, corporate welfare, etc. Also, he views that borrowers of credit are debtors, but they get something in return after using the borrowed credit. Stiglitz believes that those who are engaged in collective action are aware of the outcomes. For example, he blames the financial crisis which was experienced in 2007 to 2009 on reckless lending where he said that the banks were aware of the outcomes. On the other hand, Hayek argued that inequality is important for society. He said that the belief in a free society should not be used to explain inequality. The observation that establishing a free society that promotes equal rights for everyone is against the original purpose of the society as Hayek claims. This is because people will not survive in such society if they believe that it is unfair, and the powerful take advantage of this opportunity. Social scientists such as Stiglitz examine the difference in wealth of the elite and the poor. The observation is that the difference is extremely large and therefore there is unfairness while their opponents including Hayek say that the difference is normal and it is the driving force for development. To him, the free market rewards those who have a certain skill and those who do not have are penalized (Blakeley and Clarke 2014, p. 365). Most of the scholars claim that the poor are becoming poorer, and the rich get richer. From this observation, it is very clear that what matters is not the difference but, the improvement in one’s welfare. Thatcher (1990) said that some people would prefer to be poor as long as the gap is small. These scholars, therefore, provide qualitative evidence that a society can never be equal regarding wealth. People are different and the level of effort they apply also varies because they have different values. For example, there are those who value money while others value luxury. The same thing applies to freedom such that when an individual wants to be free, he/she will first have to accept this fact diversity including wealth and income. In the discussion of the role of the state in governing inequality, Hayek believed that the government could not correct social inequality. This is because according to him, the government is not in a position to judge and reward. Therefore, to him, the only mechanism that will promote a just society is the market. Inequalities are natural because people have different talents (Blakeley and Clark, 2014, p.365). In this argument, Hayek was echoing the work of Adam Smith who said that people should be left alone to buy and sell freely without any government intervention. Smith argued that inequality distorts people’s sympathies, and this makes them admire the rich and ridicule the poor. It is usually human nature that people want to be associated with rich. According to Hayek, government intervention should be at the minimum because inequalities in the market are inevitable, and the intervention can be regarding laws, rules and regulations. Unlike Stiglitz, use of tax is unjust and inefficient because the government is unable to obtain all the necessary information (Blakeley and Clark, 2014, p.367). His argument is that in the marketplace, trending goods spread across the market through the upper class of society, and this explains the reason why they are associated with good things in life. The role played by the rich in the market is very clear; they are the ones to acquire new and expensive technologies and those behind them criticize them. To Hayek, assisting the poor is only necessary to those who are at the risk of starvation because, without them, it is dangerous for a state. The state should only respond to social inequality when the poor tend to interfere with social order. This argument is also supported by qualitative evidence that the poor are likely to engage in crime as they try to acquire their needs from the rich (Blakeley and Clark, 2014, p.366-7). Stiglitz was concerned with the growing inequalities particularly in USA and UK (Blakeley and Clark, 2014, p.368). According to Stiglitz, three-quarter of the economy in those two countries are held by one percent. He paid attention to inequalities regarding gender and race, and he noted that there is a disparity between white and black, and between men and women. However, Stiglitz agrees with Hayek’s view that society benefits from free and competitive markets. In addition to this, he concurs with Hayek that some types of inequalities are unavoidable in any market economy as Hayek argued. To him, the extreme increase in inequalities experienced in this century is not caused by the inevitable product of the free market. He says that the inequalities affect the market negatively. The cause of the extreme inequality is because of the information which is not shared equally and as a result; transactions are unstable. For example, he believes that the banks had more information on mortgages, and they took advantage of those who bought them. At the global level, Stiglitz uses the example of IMF to explain this imbalance in information. Therefore the information imbalance calls for government intervention on inequality because this is the cause of imperfect markets. He scrutinizes thinking of some scholars such as Hayek who argue that a market has its invisible hand. Stiglitz said that financial liberalization of 1970-80s caused financial instability (Stiglitz 2012, 89-92). The state can, therefore, intervene through imposing high marginal tax rate on those high-income earners. Stiglitz pays attention the studies of Diamond, Saez, and Piketty (2011), where they discuss optimal tax rate and Piketty said that the rate of return must exceed the economic growth for inequality to occur. Stiglitz said that there is no need for the rate of return to exceed growth and Atkinson supported him in this view. However, one thing that Stiglitz forgot to consider is that high tax rate punishes both successful and unsuccessful entrepreneurs and the tax policy issue is complicated. The state should aim at reducing market framework misrepresentation so as to eliminate systemic inequalities. Stiglitz also blames politicians for failing to act on interests of the majority rather than 1 percent. It is the role of the government to promote a progressive tax system. He implies that the government failed to ensure that the rich are paying more tax than the poor. His quantitative evidence is that the rich tax rate is lower than for the less well-off. He said that the rate of the one percent dropped from 37 percent to 29.5 percent (Stiglitz 2012, p 72-3). In conclusion, Hayek and Stiglitz differ on the view of inequality. To Hayek, inequality is natural and an important aspect of the economy while to Stiglitz; inequality is a product of poor government policies and politics. According to Hayek, inequality arises because of the limitations of one’s knowledge as he argues that people are naturally not equal as others are talented, and others are not. Stiglitz, on the other hand, blames irregularity of knowledge or information for the inequality experienced in the current economies. For this difference, the two economists also view the role of the state o inequality differently. For Hayek, government intervention will interfere with the natural balance of the free market, and therefore he only advocate for least state intervention and it should be applied when those affected are at the risk of starvation. Stiglitz argues that it is the responsibility of the government to address inequality because it affects the economy negatively. For example, inequality influences public investments such as education and infrastructure. In summary, Hayek argues that state intervention on inequality will interfere with economic and political freedom, while Stiglitz sees government intervention as necessary because inequality affects democracy. Part 3: Self-reflection For my four assignments that I posted in the forum, I received different feedbacks on them. These comments are useful to me as I will use them to improve my final assignment. I will use the instructions and explanation to understand concepts and to identify errors. I will also pay attention to the examples or suggestions given in the feedback and try to apply them to improve my sentence structure and to refine my words. I also learned that through forum posting, I would be more creative in my work because the work of other students posted in the forum will provide me with new ideas that I can use in my work. Through the forum posting, I have learned to stay immersed in the work of others as this builds my skills. This is because I also provide comments to other people’s work, and they can also apply my comments on their work. References Blakeley, G. and Clark, J. (2014) ‘Governing inequalities’, in Clark, J. and Woodward, K. (eds) Understanding Social Lives, Part 2, Milton Keynes: The Open University. Read More

Also, he views that borrowers of credit are debtors, but they get something in return after using the borrowed credit. Stiglitz believes that those who are engaged in collective action are aware of the outcomes. For example, he blames the financial crisis which was experienced in 2007 to 2009 on reckless lending where he said that the banks were aware of the outcomes. On the other hand, Hayek argued that inequality is important for society. He said that the belief in a free society should not be used to explain inequality.

The observation that establishing a free society that promotes equal rights for everyone is against the original purpose of the society as Hayek claims. This is because people will not survive in such society if they believe that it is unfair, and the powerful take advantage of this opportunity. Social scientists such as Stiglitz examine the difference in wealth of the elite and the poor. The observation is that the difference is extremely large and therefore there is unfairness while their opponents including Hayek say that the difference is normal and it is the driving force for development.

To him, the free market rewards those who have a certain skill and those who do not have are penalized (Blakeley and Clarke 2014, p. 365). Most of the scholars claim that the poor are becoming poorer, and the rich get richer. From this observation, it is very clear that what matters is not the difference but, the improvement in one’s welfare. Thatcher (1990) said that some people would prefer to be poor as long as the gap is small. These scholars, therefore, provide qualitative evidence that a society can never be equal regarding wealth.

People are different and the level of effort they apply also varies because they have different values. For example, there are those who value money while others value luxury. The same thing applies to freedom such that when an individual wants to be free, he/she will first have to accept this fact diversity including wealth and income. In the discussion of the role of the state in governing inequality, Hayek believed that the government could not correct social inequality. This is because according to him, the government is not in a position to judge and reward.

Therefore, to him, the only mechanism that will promote a just society is the market. Inequalities are natural because people have different talents (Blakeley and Clark, 2014, p.365). In this argument, Hayek was echoing the work of Adam Smith who said that people should be left alone to buy and sell freely without any government intervention. Smith argued that inequality distorts people’s sympathies, and this makes them admire the rich and ridicule the poor. It is usually human nature that people want to be associated with rich.

According to Hayek, government intervention should be at the minimum because inequalities in the market are inevitable, and the intervention can be regarding laws, rules and regulations. Unlike Stiglitz, use of tax is unjust and inefficient because the government is unable to obtain all the necessary information (Blakeley and Clark, 2014, p.367). His argument is that in the marketplace, trending goods spread across the market through the upper class of society, and this explains the reason why they are associated with good things in life.

The role played by the rich in the market is very clear; they are the ones to acquire new and expensive technologies and those behind them criticize them. To Hayek, assisting the poor is only necessary to those who are at the risk of starvation because, without them, it is dangerous for a state. The state should only respond to social inequality when the poor tend to interfere with social order. This argument is also supported by qualitative evidence that the poor are likely to engage in crime as they try to acquire their needs from the rich (Blakeley and Clark, 2014, p.366-7). Stiglitz was concerned with the growing inequalities particularly in USA and UK (Blakeley and Clark, 2014, p.368).

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