Root of Evil

BRAND_BIO_Bio-Shorts_Pope-Francis-Mini-Biography_0_172238_SF_HD_768x432-16x9Root of Social Evil – The expression was ‘’tweeted’’ by Pope Francis referring to economic inequality. It’s a reasonable and logical statement, but, unfortunately ignored by some politicians who tend not to see the big picture

and the problems that high inequality can cause to the economy and society.

Conservative economists and politicians have the following approach to this problem: inequality is natural in society and state intervention to deal with the effects of high inequality is bad for the economy because it limits the incentive for those who earn more to create even more wealth.

In part, there is certain logic to this idea. In capitalism, initiative is critical and it is necessary to take this into account. However, currently we have growing reasons to believe that high inequality is not good for the economy.

First of all, because economic growth doesn’t depend only on incentives. Opportunity is important too. The poorest don’t have the same opportunity as those who are from middle or upper class because they don’t have the same investment capacity or ability to improve their education and qualifications, so the contribution they make to the economy is smaller and less productive. With investment in public schools and universities, a health care system and welfare that strengthens the middle class, all people give a more productive contribution to society and economy. For example, all companies benefit in having better educated employees and for this a competent public education system is necessary. It is also true the importance of less inequality for entrepreneurship. Note that the probability of poor people to have an entrepreneurial initiative are much smaller than if it happens to an individual from middle and upper class (there are some success stories but are so small that they are not relevant to the case).

A highly unequal society means wasted potential, since we have human capital that because there are no policies investing in people falls short of its capabilities. It’s like having a football team where only 3 or 4 players train and develop their skills and all others aren’t improving their capabilities. A practical example of the positive impact of human potential investment is the issue food stamps in the United States. When they were implemented in the US some conservative economists and politicians showed up against because reduced the incentive to work. However, this policy has allowed some individuals and children to have less nutrition problems, meaning less health problems and therefore more productive for businesses and economy.

Another positive aspect for the existence of a lower inequality in a country is the fact that by moving money supply for those who have lower incomes, they will spend that money more easily; since they have more needs to be satisfied than those with higher earnings. This can benefit a country in crisis as it stimulates domestic demand. Picking up again the example of food stamps, according to a study by the US Department of Agriculture in 2011, for every dollar invested in this program the return in terms of economic activity is $ 1.84. Besides being a program that aims to reduce hunger and poverty it is also an investment. The explanation for what happened is very simple: the state, despite spending money with this transfer to those who have little or nothing, will generate more demand for food products of basic necessities, stimulating the market. Since the agents entering the market will need to respond to these needs the production will increase and therefore there will be more jobs available.

So we have sufficient reasons to believe that high inequality is something that does not benefit the economy and the opposite is something that can be positive for economic growth. If we add to all this the fact that societies with deep inequality tend to have more crime, violence and populism, and these situations also contribute to weaken the social cohesion and unity of a country, we understand the Pope’s words: high inequality is itself the root of social evil and something to avoid.

In conclusion, although markets need some inequality to operate, it is necessary that the state intervenes to redistribute and compensate the negative effects of high inequality. Progressive parties have changed a lot over the years but should never stop being the champions of this cause.

 

André Branco Pereira, Law Student

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