The article ‘The income gap grows’ by Robert Frank holds that the rate of economic inequality in the United States has been on the rise. Documented evidence shows that the early 20th century was marked by consistent increases in household incomes with inequalities remaining low. However, the trend began to reverse in the 1970s with the onset of the oil crisis. For many of the households, income has over the years been growing at a rate of only 1 percent in contrast to the explosive rates of growth experienced by those at the top of the economic chain (Frank).
The article’s main point of interest is the concerns it raises on the consequences of continued increases in income inequalities and the negative outcomes that can be seen in some Latin American countries. Nevertheless, the discontent caused by income inequalities and one that is quite obvious in some European countries is not seen in America. A look back at history shows that Europeans are more likely to fret over how the national pie is divided than Americans. A large section of Americans believe that through hard work, you can become rich; a notion that is firmly grounded in the American dream. Due to this, political leaders have ignored policies on redistribution of income but have instead pursued policies that enhance economic growth (The Economist).
The idea of scarcity is an important feature in the definition of economics. In face of unlimited human wants, the resources available are limited. This creates the economic problem of what to produce, how to produce it, and how the output will be distributed. The decisions on how to allocate resources or ‘who gets what’ in economic theory is not based on the concepts of social justice or equality (Marshall Ch.2). The article by Frank points to this fact. The economic theory tries to find any form of correlation between positive statements (King Ch. 1). Once a society defines its important values, the findings of economic theory can be applied to enable society to achieve those values. For instance, if economic theory points to the fact that income inequalities are widening, the government can use this information to try to correct the disparities. By answering questions of ‘for whom to produce’, economic theory offers practical guidance on the correct steps to be taken.
In addition, the article also shows that optimal market allocation of resources is almost impossible. External factors influence the firms and individuals in the market-leading to market failures. When the forces of supply and demand within the market are tampered with, inequalities are created (Kurth). In the case of income inequality, the circular flow of income is disrupted. The household’s ability to own and sell the three factors of production is greatly affected. For instance, in case of imperfect competition in the market, some firms may be set prices above-market prices. Households will be forced to purchase the goods at this high price-reducing their capital. Eventually, the household’s bargaining power in the market is greatly weakened. This is also evident in Frank’s article. Households in the United States spend more time working, spent more, and save even less. This state of affairs has been propagated by the failures of the market as well as public policies especially tax cuts for the rich and large corporations.
While the American public has over the years demonstrated a relative concern over the income inequalities, it remains to be seen if this will last. As the failures of the market deepen as exemplified by the current financial crisis, the public may begin to raise concerns over income distribution. However, there are no signs of upheavals in the United States. The old belief that ‘rising tides will rise all boats’ by J.F Kennedy seems to be holding. However, an imbalance between the incomes of the people is an issue that should be addressed as it can not go on forever.
References
Frank, Robert. The Income Gap Grows. 2005. Web.
King, William. Economics: A Reasonable Dialog. Web.
Kurth, James. The Rich Get Richer. Web.
Marshall, Alfred. Principles of Economics: The Substance of Economics. Web.
The Economist. Inequality in America; The rich and the Poor and the growing gap between them. Web.