Inequality has reached acutely high levels. There are costs.
- The most fundamental impact of inequality as it reaches this level of wealth concentration, (over 40% of the world’s wealth is owned by the top 1% of the population and over 80% of the world’s wealth is owned by the top 10% of the population), is that the capital allocation decisions are concentrated in the hands of the few. The efficiency of this capitalist, free market economy, tends to the efficiency of the centrally planned (for example, Soviet) economy.
- A related implication is that the consumption patterns of the population are distorted by the heavily skewed wealth and income distribution. The price mechanism is distorted as certain product markets are dominated by certain strata.
- Economic models based on aggregates or averages lose their explanatory and predictive power. Simple adjustments for skew fail to capture the dynamics of income and wealth disparity. There is not one economy but several; one for each stratum of the population.
- A redistribution of wealth from rich to poor would increase the velocity of money and spur economic growth. This is unpopular as it disadvantages the rich and influential and is unlikely to be implemented in a continuous fashion.