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Many of us accept that too much income inequality is bad for the economy. Why might...

Many of us accept that too much income inequality is bad for the economy. Why might an economist argue that too little income inequality is bad for the economy?

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Answer #1

Too little income inequality is bad for the economy. One of the most important principles of economics is that individuals respond to incentives. People need the incentive to work and indulge in economic incentives. When a society has too little inequality, it means everyone faces the same economic fate irrespective of their individual talent, education, training or hard work. In that type of a society, people will not have enough incentive to indulge in economic incentives. There will be no enterprising mentality in such a society and eventually there will be no innovation.

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