Inequality and Recession in Britain and the USA - Assignment Example

Question 1 The different factors which have resulted in highlighting inequality exist because of the different variables which are used to in calculating the manner in which income distribution and consumption pattern are identified. The differences in equality exist because of the fact that the difference in the income level especially between the developed and developing countries exist due to differentiation in estimating the disposable income. The fact that the imputed rent or imputed labor is not considered in estimating the consumption or income level of an individual or household results in creating a gap between the developed and developing countries. The fact that the income level in developing countries is largely dependant on the manner in which the individual member working in the house or using his own place to stay is not considered results in wide differentials between the income of an individual in a developed an developing countries. In addition to it the inclusion and exclusion of different items like purchase of durables which is excluded from the consumption expenditure but included in the income estimates results in creating inequality and results in differences between the income levels of people belonging to different countries (Ortiz and Cummings, 2012). The change which has been witnessed in determining the different factors which will be included in the estimation of income level has resulted in changing the underlying variables. This has given rise to estimating the income or consumption level based on the different estimates which are available and look towards creating a mean and median by including the upper 5 and lower 5 percentile of the population so that the estimates becomes accurate. The changes have further been determined and estimated in the manner where the different variables like inclusion of imputed rent or labor is considered whereas the expenditure made on luxurious items or durables are excluded. This gap existed when the income level was estimated for developing countries and developed countries as inclusion of the different items resulted in widening the gap between the level of income and made inequality to exist. The changes in the variables and looking to include different factors and bringing a change in the estimate by ensuring that the data which were covered in the sample were correct help to gauge the manner in which inequality existed. The division of the estimate based on reliable and non reliable estimates resulted in covering different areas like population, income and sample size which results in inequality (Ortiz and Cummins, 2011). Widening the base and looking towards correct estimating by ensuring that more and more inclusions are made will help to transform the manner in which inequality exist and will help to reduce the gaps. The manner in which estimates are based on different variables and factors have resulted in widening the gap between the inequality which exist and will require development of fundamentals and variables through which correct estimates are made. Ensuring that all theories and models look towards using the same variables and ensuring the same inclusion and exclusion will reduce the gaps that persist in inequality and will act as a major force through which the inequality will be reduced and will help to ensure a balance between developing and developed countries. Question 2 The reason for inequality exists because of the fact that different national and international factors have a role in determining the level of income which thereby gets translated into expenditure. There are situations when the national economy is flourishing but the different variables in the international level makes other markets looks sluggish. Comparing the income and expenditure at this point or juncture will result in widening the gap and will make inequality to exist as the economy in other situation might be having a low disposable income but due to the different environmental factors the overall effect is different and will make the estimates to be largely flawed. In addition to it the manner in which different economy have different exchange rate with relation to currency fluctuation also results in resulting the gap as the developing economy will find there currency to be undervalued and will thereby represent a different value in the international market then those present in the domestic market. The problem compounds when inflation and the level of unemployment are included. This will result in contrasting effect and will thereby make the entire differences which exist between the inequality of income and expenditure to rise and will make it difficult to ensure that the correct balance is ascertained (Banerjee and Duflo, 2000). The different national and international variables which determine the manner in which the economy is progressing thereby has a role in shaping the performance and results in the creation of inequality. Question 3 Inequality has an effect on the manner in which economy looks towards providing the general level of health in the economy. A country which is poor and developing has to rely on external existence to get the required support through which proper health facilities can be provided. Those countries have to look towards developed countries to get the required financial assistance which will ensure better standards and provide an opportunity through which better health care facilities can be provided (Lansley, 2012). Inequality results in multiplying the difficulties for the economy as it widens or reduces the gap between the developed and developing economies which thereby makes it difficult to get the required finance through which the general level of health activities can be provided in the economy. The importance of general health level are further manifested in an economy as it is the responsibility of the government to provide the infrastructure through which necessary health care facilities can be provided (Lansley, 2012). Inequality results in widening the gap and makes in difficult for the economy to provide the same level of facilities. This instance gets reflected in the manner the general public is able to get the required benefits from the infrastructure which has been developed. This thereby requires determining the correct variables and measuring the performance of the economy in such a manner that the gap which exist between the economies reduces and inequality doesn’t exist. This will help to develop health care facilities and provide better services to the society. Question 4 Inequality in the manner in which income and wealth is distributed has an effect on the economic growth because of the economic and politico-economic reasons which has an effect on the performance of the economy. The world economies are constantly witnessing the manner in which differences between the income and wealth sharing pattern has resulted in creating wide gaps and has made it difficult for the economy to sustain high growth rates. This has affected the future forecast and requires determination of steps through which the overall conditions can be improved. Unequal distribution of wealth and income results in creating an imperfect market condition where a large number of people are not able to take the required credit which would have helped in productive development. This affects the growth rate of the economy and makes it difficult to project better growth rates. This has been aided by the fact that unequal wealth distribution results in a rise in fertility rate and a decrease in the rate of investment being made on households to ensure that better human with the required education can be developed. This thereby has an effect on economic growth rates as the decisions taken by those are not with international standards. Lastly, unequal distribution of wealth also reduces the size of the domestic market which thereby doesn’t help to gain the advantage of economies of scale resulting in higher prices and lower productivity. This makes it difficult to deal with competition and takes it toll on the manner economic decisions are taken and thereby affects the growth rate of an economy (Wilkinson and Pickett, 2009). The market imperfections thereby get reflected on the capital market as people looking towards investing in the business has to rely largely on loans. This makes the interest rate on loans to be high and reduces the willingness of the employer to invest large sum in the market as the large part of the income will be spent on interest. This thereby contradicts the market and reduces the size of the market. This results in reducing the overall productive capacity of the market and takes a toll on the credit market. Credit policies as a result become ineffective which makes few people look for additional loans. This affects the growth parameter of the economy and makes the economy work under the shadow of decreasing or negative growth rates. The fact is strengthened as the policy of credit rationing largely depends on the ability of the employer to finance money through him and the lack of wealth due to imperfect distribution results in widening the gap and makes it difficult for the business to be able to generate the required potential through which the market will be able to gain momentum and highlight positive growth rate (Irvin, 2011). The relationship between wealth and income also has an effect on the consumption pattern and results in creating widespread disparity. If the distribution of income and wealth was same it would have resulted in the purchasing of heterogenous products with all consumers looking to purchase the same products and services. This doesn’t exist due to differences between the level of income and wealth. This thereby creates differences between the consumption patterns and creates gap in the manner the employees looks towards purchasing the different goods and services. This makes the people who have a low income and low proportion of wealth purchase products in fewer quantities and the wealth individuals purchase goods and services to meet their needs and demands (Atkinson and Morelli, 2011). This creates a gap between the actual and the potential market if inequalities don’t exist. This thereby creates a wide gap in the consumption pattern and makes it difficult for the economy to project the same growth rate and results in creating differences between the actual and the potential growth rates. The major factor which can contribute towards the growth of the economy is the manner in which innovation activities takes place within the economy. The rising inequality in wealth results in widening the case in which innovation takes place as improper distribution of wealth makes it difficult for the poorer section of the society to take initiatives and develop ways through which better opportunities for the future can be developed (Bao and Guo, 2004). This thereby results in reducing the opportunities and makes it difficult for the economy to take steps through which decisions are taken and thereby reduces the manner in which the decisions are taken within the organization. Now looking at the manner in which inequality exist which results in reduced growth rate for the economy from the perspective of politico-economic factors will further help to improve the understanding in this regard. The unequal distribution of income will result in an increase pressure due to increase in redistributive tax pressure which will thereby reduce the amount of private investment and will have an effect on the growth rate (Matsuyama, 2002). This has been further fuelled by the fact that worsening income inequality will result in negative growth rates which will thereby have an effect on the socio-political environment as it will become unstable thereby further reducing the amount of private investment that is made. This politico-economic factors will thereby have an adverse effect and will create a condition where decisions which are taken doesn’t reflect the same productivity and will thereby translate into negative or decreased growth rates. The overall growth in the economy is thereby largely affected by the manner in which distribution of income and wealth in the economy exists. This has relevance on decision making as will reduce the amount of private investment and will thereby gradually result in reducing the overall investment which is made in the economy. This will thereby make the economy reflect negative growth rates and will thereby reduce the overall future potential for the economy and will have an impact on the manner in which future investments are made in the economy. References Atkinson, T. and Morelli, S. (2011) “Economic Crisis and Inequality’ United Nations Development Programme (UNDP) Human Development Reports, November 2011 Banerjee, A.V. and Duflo, E. (2000) Inequality and growth: what can the data say? NBER Working Paper No 7793, July Bao, Y. and Guo, J.T. (2004) Reexamination of economic growth, tax policy and distributive politics. Review of Development Economics 8(3): 474-482. Irvin, G (2011). Inequality and Recession in Britain and the USA Development and Change. Available at: http://www.george.irvin.com/D%26C.pdf Lansley, S. (2012) The cost of inequality London: Gibson Square Matsuyama, K. (2002) The rise of mass consumption societies. Journal of Political Economy 110(5): 1035-1070. Ortiz, I. and Cummins, M. (2011) Global Inequality: Beyond the Bottom Billion. Unicef Social and Economic Policy working paper, April 2011 http://www.unicef.org/socialpolicy/files/Global_Inequality.pdf Ortiz and Cummings, (2012). UN HDI website; Wealth Report; World Income Inequality Database see: http://website1.wider.unu.edu/wiid/WIID2c.pdf pp.4-7 Wilkinson, R. and Pickett, K. (2009) The Spirit Level: Why More Equal Societies Almost Always Do Better Bloomsbury Press Read More