In our society people could be divided in to two main groups, the poor and the rich. However, the poor tends to live as a poor forever, and have a rare chance to become the rich. The problem that is more severe is that even the offspring of the poor tends to be poor. Thus most of the citizens would agree that a government should do something for the poor or the loser in the society. But, we must decide to help whom and how much. One more controversial is how to find money to help the poor and the losers. One of the most controversial economic policies is on economic growth and income distribution. Therefore, many economists have long sought to understand the relationship between economic growth and income distribution. The following issues have been a controversial issue between economists.
�� Do countries with unequal income distributions experience slower economic growth than more egalitarian countries?
�� -Should governments consider adopting redistributive policies to improve the situation of the poor?
�� -Does economic growth result in an unequal distribution of income?
First, I would like to give 2 brief explanations of why the government should try to decrease the number of the poor. Viewing the poor in a humanitarian issue, it is sorry for them, because the poor don��t become poor because they want to, some are born poor. Thus, many aren��t satisfied with their life and commit suicide. Recently, it was reported that almost 14,000 killed themselves a year. Out of those?who killed themselves, 43 percent of them committed suicide because of pessimism, 23 % committed because of physical illness, mental illness was cited for 6 percent, and poverty was cited as 5 percent of all suicides. However, the percentage of people who committed suicide because of poverty must be much higher than 5%. Pessimism results from having not enough money to live happily. Also physical or mental illness could happen if people don��t have enough money to take care of themselves. These mean that mainly, poverty made people commit suicide. We could look the poor as a social issue. In news we get to see many people who got caught for stealing or kidnapping. Why do you think those people are doing those kinds of wrong acts? It is because of poverty. Robbers and kidnappers weren��t born to be a robber or kidnapper. As they lived in the society, they got in to a low level class and turned out to be one of the poor. Therefore, those people needed to earn money by doing something. Since they don��t have any ability, the final option they took was to rob or earn money by kidnapping a person. In short, by looking at those brief 2 explanations, people should consider about the poor and try to decline the number of the low incomes.
Two of the most controversial economic policies to decrease the low income are the policies of economic growth and the income distribution. The concept ��Economic Growth�� means increase in value of the goods and services produced by an economy. (Casson) Specifically, it is an increase in the income a nation. The increase in the income is actually measured as the percent rate of increase in GDP, which meaning real gross domestic product. The notion ��Income distribution�� means getting the taxes of the rich and giving it to the low incomes to make peoples income almost equal. Classical economists such as Adam Smith and David Ricardo were mainly concerned with factor income distribution of income between the main factors of production, land, labor, and capital.
I would first like to explain the view of economists, who believe that income distribution is needed to decrease the poor and needed to increase the rates of growth. Many economists believed that economic growth helped the poor and have a better result than income distribution in rate of growth.(Tabatabai) However, some economists made an empirical work that shows negative relationship between initial inequality and future growth. They found out that unequal economies will experience lower rates of growth and, in general, lower rates of poverty reduction. Thus, they concluded that before developing our economy, we should make a policy distributing the income to the poor. Any how we could know that income distribution give a good effect to people from the graph below.
Contrasts to the concept of income distribution, some economists suggest that economic growth would help decrease the low income and income distribution could cause low growth rate. Some economist examined the relationship between overall growth and changes in the incomes of the bottom 20% of the population during 10-year period, and they have found a little systematic relationship between overall growth and changes in inequality.(Ghose) They found a strong systematic relationship between overall growth and growth in the income of the bottom 20% of the population; the latter increased in more than 85 percent of 91 cases. This means that even with economic growth the incomes of the poor don��t decrease but increase. Also, I found out that collecting tax to make people��s income distributed could result in a lower growth rate. Actually by collecting taxes from the people it will actually result in greater inequality. Thus, greater inequality would result in lower growth rate. The chart below will show you how collecting tax makes lower growth rate.
-Effect of Distribution-
Organizing the facts I stated above, there are two main policies to decrease the number of poor, which are economic growth and income distribution. Both of the policies actually have advantages to the people and the poor. Any way, economic growth is a policy that government just thinks about the growth of the country and stating that the income of the poor will naturally increase as the country income increases. In contrast, income distribution is basically collecting taxes from citizens and giving it to the poor so that the incomes of the citizens could be divided equally. However, I prefer the policy of economic growth. Although there are many advantages of income distribution, as we see in our world, there aren��t many countries that are rich and have no poor people with the policy of income distribution. On the other hand, we could see that there are more countries which develop fast and have not many poor people with the economic policy of economic growth.
Works Cited
Internet Resources
David Chandler. ��Tour of the US Income Distribution,"The L-Curve"��
David Chandler. 28, Dec 2005.
28 Sep. 2006 < http://www.lcurve.org/>
Louise Pinchen. ��Income Distribution��
Monash University Faculty of Business and Economics. 2006
26 Sep. 2006
Periodicals
Chang Se-moon. ��Economic Growth vs. Income Distribution�� Korean times
11 Oct.2005
Monte Reel. ��In Bolivia, New Setbacks To a Leader's Lofty Vision�� Washington Post
31 Aug. 2006
Books
Cultural Factors in Economic Growth
M Casson, A Godley History, 2001
Economic Growth and Employment Structure: A Study of Labor Out migration from Agriculture. Ajit Kumar Ghose - Business & Economics, 1990
Statistics on Poverty and Income Distribution: An Ilo Compendium of Data
Hamid Tabatabai, 1997