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Is there a correlation between capitalism and income inequality? Show more Show less
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The political debate around whether capitalism and the tenets of free market socioeconomic modeling are beneficial for society has been raging for hundreds of years. Within a modern context, the topic of income inequality (especially within largely capitalistic countries like the United States and, to an extent, the UK) has emerged alongside the effects of the free market on the world economy. So, a big question within both the economic and political realm asks: Is there a correlation between capitalism and income inequality?

Yes, capitalism causes inequality Show more Show less

The economic system of capitalism has proven time and time again to directly influence a country's levels of income inequality across the board.
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A large portion of inequality is due to the "Superstar Effect"

The "Superstar Hypothesis" largely explains the inequalities seen today within the age of technological advancement, capitalism a driving factor in the emergence of the few over the many.
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The Argument

The "Superstar Hypothesis," first proposed by Eric Posner and Glen Weyl, basically claims that capitalism is inherently designed to benefit the few over the many because it is a system based upon a one-in-a-million talent. It can be seen in sports, the music industry, and other forms of entertainment across the board. Because there are so few "superstars" that naturally outperform their competitors within the market, their talent accrues most of the wealth for themselves. This, in turn, causes huge problems with inequality once those at the top are so few and far between that it is almost impossible to inspire economic incentive in people at the bottom or in the middle who are not economic superstars. The New York Times claims, "If only a very lucky few can aspire to a big reward, most workers are likely to conclude that it is not worth the effort to try. The odds aren’t on their side."[1] Most detractors of capitalism claim that we must curb the "superstar effect" through governmental intervention.

Counter arguments

The "Superstar" effect is not necessarily bad, nor is it a natural indication that inequality will exist in a positive feedback loop forever. In a free society, the most gifted and talented should be able to reap the benefits of the system without being stifled by governmental forces. The lack of technological innovation and progression into the future that would result from such a leveling of the talent pool playing field would drastically change society in a plethora of negative ways. Incentivization, rather than simply decreasing over time, would be completely non-existent, and everyone would shrink to the bottom without a goal.

Proponents

Premises

[P1] The "superstar effect" hypothesizes that inequality exists because the very few exceptionally talented benefit most greatly from the wealth-based economic system of capitalism. [P2] The "superstar effect" must be curtailed because of the negative effects it has on the incentive for people who are not superstars to close the gap between themselves and the super wealthy over time. [P3] Capitalism naturally produces the "superstar effect," which produces rampant inequality.

Rejecting the premises

[Rejecting P2] Taking away the "superstar effect" would completely decentivize any individual need for personal growth or the overall technological advancement of future society. [Rejecting P3] The "superstar effect" should not automatically be curtailed.

References

  1. https://www.nytimes.com/2010/12/26/business/26excerpt.html

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This page was last edited on Monday, 10 Aug 2020 at 15:41 UTC

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