Is rising inequality necessarily bad

Is rising inequality necessarily bad


– [Instructor] The word
inequality by it’s very nature at least sounds, sounds
a little bit unfair. Obviously everyone’s not
getting the same thing. They’re not getting the same income or they don’t have the same wealth. But the question needs to be asked is is this necessarily a bad thing? And even if it is a bad thing, are the ways of fixing it
or trying to address it, could they make matters worse in some ways especially for the people
that you’re trying to help. And once again my goal
here is to not tell you one way or the other, but to at least give you a
framework for thinking about this So let’s just think about a world where he have kind
of a fixed pie economy and there increasing inequality is clearly not doing good for for the people who have less resources. So let’s imagine a fixed pie economy. So let’s say this, this this rectangle right over here represents the total national
income in a given period. So year one, this is the
total national income. Total national income. And let’s say that in year one, the top 10% of earners, the top 10% of earners make a third of the national income. So they make a third
of the national income. This is the top 10%. Now let me very clear. This area right over here is
not 10% of the whole rectangle. This is 35%, or actually this not I said this is a third,
so this is going to be 33. This is 1/3 of the entire rectangle but it’s the income from the top 10%. Income from the top 10%. Now that would mean that the other 90%, other 90% is essentially splitting the remaining 2/3 of
national income between them. So if you go, if you take this reality and if the total pie, so let’s do a static pie right over here. So pie stays the same. So pie, now I say pie, I’m talking about the square thing here. I guess it doesn’t look
to, to much like a pie so we better call it a pie. So national income,
national income static, so it’s not changing right over here. So then you have, let me try to draw a
rectangle of the same size, of the same size. And if you have increasing
inequality in this situation, then you might have the
top 10$ of earners by, let’s just say this is year 10, year 10 right over here. Maybe instead of having
1/3 of the national income, maybe they have 50% of
the national income. I’m just picking round
numbers for simplicity. So this right over here is
1/2 of national income now from the top 10%. From the top, from the top 10%. So clearly if this happens, the other 90% are now splitting only 1/2 of the national income. So this is the other,
other 90% right over here. So here it’s essentially a zero sum game. If you had a static economy, if it was not growing at all, then of course rising
inequality would mean that these people,
right over the other 90% are going to have lower per capita, I think you could say
income lower per capita GDP, they’re going to have a
lower standard of living. So they’re not doing
good in this situation. But let’s think of the other way of where do you have economic growth. And economic growth that’s enough so even if you have some inequality, the growth more than offsets that so that the, the other
90% is still better off. So let’s se if we could visualize that. So, so economic growth. Economic, economic growth. Now let’s your pie has grown
dramatically over 10 years and I’m just, maybe I’m exaggerating a little bit for the sake of, for
the sake of discussion. Let me draw them like this. So I’m trying about the same height, but now, our whole economy, let’s say our whole
economy has, has doubled. Our whole economy has doubled here. And now at this situation, let’s say you still have this
wealth and equality growing. So the top 10% in year one
having 1/3 of national income. Let’s say that it still grows
to 1/2 of national income in year 10. So 1/2 of national income, so I can draw that a little bit neater. So half of national
income right over there. Half of national income, so 1/2 of national income. So this is still the situation where you’ve had inequality increase but the half of national income, that’s half going to have to be split between the other, other 90% has still grown
fairly dramatically. If we assume that I’ve
drawn it pretty close to proportional, so let me just copy and paste this. So copy and paste. So this is how much was being split amongst the other 90% in year one. And notice, it’s much smaller
than how much is being split by the other 90% and naturally I’ll put it right over here to the other 90% in year 10. If we assume that the
population hasn’t grown by this amount. It’s grown by something smaller than this or maybe the population
has been relatively stable, then your per capita, your per capita GDP,
your per capita income is actually going to improve. So this is a situation here, where even though
inequality has increased, because the pie has gotten bigger, these people are better off. These people are better, are better off. And so that leads to really one of the fundamental questions, especially when you’re thinking
about economic systems, is that you have this, you have this market system,
this capitalist system, this market economy, market economy and at least in recent
history it’s shown us that hey, this is, this leads to growth, wealth creation. So pie, so economic growth, economic growth but it also leads to inequality. It also leads to inequality. Inequality is an inevitable by-product. Inequality. Now the question you might have to ask is well look, is this necessarily bad? If this economic growth is enough, everyone is better off. It doesn’t matter if some
people are even more better off than other people but
everyone is better off and it’s important to think about if you try to just focus on inequality, just focus inequality, are you also going to
stop this from happening? Another way of thinking about it. If you’re one of the people in this in this situation right over here, you’re the other 90%, would you rather stay in this world where you’re in a static pie and inequality is not increasing, or would you rather go to
this world right over here. Now once again, the point of my video isn’t to say that this world
is necessarily going to happen. There could be a world where
your total economic growth was less than this and the pie got bigger and these people are not as well off. But I, the whole point of this is just to highlight that inequality is not necessarily always going to lead to the people on, I guess who
are getting less of the pie, being worse off if the
pie grows fast enough and the other thing to realize is well, if you sometimes, you
might in an attempt to lessen inequality, you might also stifle economic growth. And that might keep everyone
from being better off in this scenario right over here. So once again, it really
depends on the context, it really depends on the
situation and the variables and then the numbers you’re looking at, but I really just wanna emphasize that there’s no such thing as hey,
if there’s rising inequality it’s going to hurt always the other 90%. It will definitely benefit the people who are maybe in the top 10%, but it also, because that’s a
by-product of economic growth, it might make these
people better off as well.

Author: Kennedi Daugherty

20 thoughts on “Is rising inequality necessarily bad

  1. With just a simple lesson in economics, it becomes obvious that the free market, capitalist system works. I love these videos, they help me understand a lot of complicated topics. Thanks.

  2. Before anyone dislikes this video first without watching it, please understand that what Sal is doing is not taking any side or asserting any sort of opinion about how the economy should be handled. He's simply trying to get people to understand that inequality in the context of economic is not automatically a losing situation for the people that's not in the top 10%. I think he did a great job presenting this lesson, and I hope you keep an open mind while listening to him.

  3. I mean you can always have capitalism but its regulated and there are many social aspects. Business opportunities and job growth is the same but the distribution of wealth doesnt allow 6 people who didn't do anything to have more money than half the country (Walton family inheriting money)

  4. It is fun and clear example. As most of economics is. At the same time this model depends on two values and you demonstrate just one possible combination of those. if you plug different values of economy growth and inequality you can have completely different picture.

  5. Economic growth is good but that does not equal that inequality is good.

    What of the world where there is economic growth and less inequality.

    Same logic. The rich are still benifiting but the wealth is more equally shared. Good for everyone.

    The reasoning that we schould not care about 1 bad thing because it is being compensated by 1 good thing that may or may not have a connection is flawed.

  6. The solutions are always trivial, when people willing to it, and stop their greedy. The most important part is the laws who ruled for the advatage of the superiors and by them. The most important issue is the interests. If one doesnot invest directly to something that creates employment, and only giving credits or invest in papers, then the inequality seems diverge far. This section of money creates inequality from vast interest etc by charhing interets on poor poeple. Dont forget, if one become billionare, its because of other people buying it. In other words, people who make them billionare, also should have some rights on those over wealth. And governments have to regulate this. Support should be the key word. Nothing should be free of charge of course, neither high interest rates should be. So, the competional market argument is the biggest lie ever we seen. Cause there is no competional thing, as we know, they take the advantages under laws they put by bribed politicians

  7. Remember people: poverty =/= economic inequality. Two completely rich individuals can have inequal wealth while at the same time two poor individuals can have the same wealth.

    So keep those two concepts separated and dont use one instead of the other

  8. I’m not experienced in politics or economics but personally, I can see both sides of the spectrum having merit to their tenets.

    I recognize benefits in capitalism but also recognize benefits in socialism.

    Honest question: Could someone well versed in economics + poly-sci explain what someone who falls in between capitalism/socialism be considered in the political spectrum? I’d like to explore such alignment.

    I find it outrageous for the wealthiest folks to have $100 for every $10 everyone else has (I know the maths there stink, it’s a sliding scale but I trust you can understand the overall message).

    Why is the greed of men so that there is such disparity? How much is enough? it hurts to see how an actor or say, a twitch streamer can make so much more money than a neurosurgeon.

    What does this say about about our society and the status quo?

    "I am just as interested in the weight and convolutions of Einstein's brain than in the near certainty that people of equal talent have lived and died in cotton fields and sweatshops" — Adapted from Stephen jay Gould

  9. Higher wealth for the other 90% doesn’t always equate to better off. If money is power an the top hold a growing percentage of total wealth then their relative power is growing as well. The other 90% would see their ability to affect positive change in their own lives and the lives of those around them shrink.

  10. These hypotheticals are decades old. Take a look at data for actual wage growth (or lack thereof) and check to see to whom are the benefits of growth going to for a very different picture. Disappointing, Mr. Khan.

  11. In ten years there was economic growth, but also inflation and population growth, so whether there was an increase in median income is unknown, which is all most people care about.

  12. great video!
    Wish more people understood this. Hopefully this will help.
    What software are you using to make the graphics for this presentation?

  13. In short, inequality doesn't really matter. What really matters is how much power the top % have and the quality of life of everyone else.

  14. As of 2017, America's richest 20% owns 90% of the wealth (https://www.washingtonpost.com/news/wonk/wp/2017/12/06/the-richest-1-percent-now-owns-more-of-the-countrys-wealth-than-at-any-time-in-the-past-50-years/). The other 80% fight for the remaining 10%. What happens when richest gain greater shares of the economy faster than the growth of the entire pie? Or, when rents and the cost of goods rise at a rate that severely outpaces the rise in wages? Since the model in this video was meant to be simple, it also glosses over the rise in political influence that the rich have over those who make the rules of how the market is run. That, too, is wealth.

  15. "not much just driving this car with an engine that is burning more and more oil the further i travel but it's fine because it's still going forward no need to fix it at all" – Sal Khan's summary of inequality

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