The wellbeing of the economy we operate in is influenced by several factors which include: culture, infrastructure and education level among others. Numerous studies have been conducted to determine how the above factors influence the economy. However little has been done to establish how much the wealth gap between the very rich and the very poor in the society, influences the economy. In my discussion I will focus mainly in bringing out how the wealth gap between the rich and the poor influence a countries economy and how the government can play a role in solving the problem.
(Amparo Castello, 2012), note that an imbalanced welt gap will always result into an imbalanced economy. Not many understand how this gap influences the economy and those who do, assume that the impact is so little and can be assumed. However the impact generated by the gap is quite significant and should not be in any way assumed. Poor citizens fill excluded in improving the economy of their countries. As a result of the negative attitude they engage in activities that hinder the positive growth of the economy. Reducing the gap between the rich and the poor would go a long way in making every citizen fill included in the running of the economy, thus enabling them to contribute to its positive development. The reduction of the gap will result in increased production thus killing monopolies which run the economy. Increased production will lead to improved standards of living since are shaped by the ability to produce goods and services.
Resent research in America shows that the wealth gap between the wealthy citizens and the poor citizens has been on the rise in the past few years. (DePillis, 2017), in her article she indicates that resent research has shown that even though there has been a general increase in income for all America’s households the increase has not been uniform. The top earners income has increased by 40% while the bottom earners income increased by 16% resulting in to an even wider wealth gap. The article also explains how the purchasing power for both the wealthy and the poor I influenced by the wealth gap. It is clear that with an increased wealth gap the rich grow a stronger purchasing power while that of the poor grows weaker. The poor cannot access goods and services since every seller wants to make the most out of his/ her sales. The goods and services are thus only available to the rich who can comfortably afford them.
As the Mankiw’s principles of economy would have it, a countries standard of living is dependent on its ability to produce goods and services and that the government can improve market outcomes. Consequently if the gap is reduced there will be more production and the government can step in to improve the market outcomes. (Aghion, 1999), also observes that a large wealth gap between people in the same society might be a great hindrance to economic success of a nation.
It is clear that wealth gap can be the cause of a poor economy. Wealth gap should not be taken for granted as it affects the economy in a significant way. Governments should work towards reducing this gap so that everyone in the society can fill included in growing the economy.
Aghion, P. (1999). Inequality and Economic Growth. American Economic Association.
Amparo Castello, R. D. (2012). HUMAN CAPITAL INEQUALITY AND ECONOMIC GROWTH:SOME NEW EVIDENC. New York: Oxford University pres.
DePillis, L. (2017). America’s wealth gap is bigger than ever. New York.
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