Top Heavy Economy Question?

Economic growth and wealth distribution are unrelated issues though I won't say contradictory.

FYI, even democracy and public welfare are unrelated issues otherwise..

EG is mostly "accumulating" game and if the person capable of earning more is forbidden to accumulate lesser than before, then wealth-redistribution will certainly hamper the EG.

Seems like an answer that is doomed to be up to someones interpretation. I don't think anyone can give you an answer based on "facts". I don't think it is because in a genuine free market(unlike in the U.S.) the ones who become extraordinarily rich created something productive and employ thousands of people(Bill Gates). But in a country where lobbyists rule the world, its no surprise that defense contractors, and wall street bankers rule the world. Washington is infested with Wall Street and on top that they are bailed out by the government with the peoples money. Then people have the nerve to go on and blame capitalism. Many of the "regulations" that are urged to be imposed are either removals of past regulations or things that generally benefit the bankers. My point is a free market, without lobbying and corporatism would be disliked by the bankers currently. Capitalism would be tougher free market regulations on these subsidized banks. Rich entrepreneurs should not be punished because they create so much! employ so many! and despite the idea that they "hoard" that money is eventually spent my someone rather it is them or their heirs. Some very wealthy people are taxed over 50% of their income and this hinders their investment ability, It also may encourage someone to stop expanding their business and go live in a pent house. From my observation of our government and its slight spending problem, I just believe the free market is more efficient with spending.

For development and growth of an economy we need more even distribution of income. The country can not achieve proper economic growth if rich becomes richer and poor becomes poorer- the ultimate result of Capitalist economy. It"s need correction and Govt. intervene.

A healthy economy has three important features; positive economic growth as measured by the Gross Domestic Product, low inflation, and low unemployment.

On average, the more income and accumulated wealth an individual has, the lower their propensity to consume, and the higher their propensity to save. If economic conditions are such that there is too much consumption and not enough investment, then we may be looking for ways to increase the propensity to save. Conversely, if economic conditions are similar to today, and we have not enough demand or consumption, and more than enough investment capital, we would be looking for ways to increase consumption of goods and services to produce demand that will spark an increase in the production of additional goods and services.

Because we experienced a dramatic reduction in personal wealth due to a large drop in the value of real estate and a very large decline in the stock market, we saw an abrupt decline in consumption which prompted widespread lay-offs and pay cuts as businesses adjusted to declining demand for their goods and services.

These layoffs and pay cuts caused additional cuts in consumption and a vicious cycle of decline threatened to cause another great depression. Various fiscal and monetary policy moves halted the decline but demand in the economy remains very weak.

Because inflation is low and unemployment high, we have tepid economic growth as people are burdened by debt and unable to consume enough for businesses to expand and hire more people and increase pay back to pre-crisis levels, let alone keep up with even the modest rate of inflation.

Because businesses have not been expanding and they took the opportunity of the decline in demand to make cuts to their least profitable segments and were able to retain workers in spite of pay and benefit cuts, businesses are relatively healthy and have plenty of investment capital available to them to expand when demand increases.

So with plenty of capital but insufficient demand in the economy, what is needed is money in the hands of people who are most likely to spend it on goods and services, rather than invest it.

Rich people have a much higher propensity to save and invest. Middle and lower income people have a much higher propensity to consume. So policies such as tax cuts for wealthy people are not as effective in increasing demand in the economy as tax cuts for the middle class. Poor people or those who are unemployed need income to consume, and tax cuts are not helpful if you have no income to tax in the first place. So part of a rational fiscal policy aimed at increasing demand in these circumstances is to generate demand by hiring people to create products and services with a positive return on investment. In conditions like we have now, the government is in a unique position to contract with firms to build infrastructure like roads and schools and electrical grid improvements and repair and replace aging water and sewer utilities and things like that. These types of projects have a lasting value. They reduce costs for businesses and citizens and they are much less expensive when interest rates are low and unemployment is high. As long as stimulus spending is effectively targeted at things of lasting value with positive returns on investment, you get a huge benefit in the economy by stimulating demand. Private companies that build this infrastructure hire people who now have paychecks to spend and lots of pent up demand for consumption for things like cars and homes and appliances etc. that they had to defer when they were unemployed. These expenditures in turn spark hiring by the companies that make the products and services these workers purchase. All of this spending and income generates increased tax revenues, not just income tax, but sales tax as well. As the bonds issued to pay for the infrastructure come due, these increased tax revenues are used to pay off the bonds and the modest interest costs.

If instead of doing these things, you simply cut taxes across the board and did not spend on infrastructure, you would have much less of your initial tax cuts spent in the economy. the wealthy would invest most of the tax cuts, and would likely invest outside the US because US companies need growth for the best chance for their stock prices to rise. By cutting taxes for the wealthy, you would further increase deficits in the short term. When bond investors think the fiscal policies of a country are not positive for growth, they demand a higher rate of return for the increased risk that rates will go up making their bonds less valuable.

So the main problem with income inequality during a period of slow growth or recession is that when sufficient capital is already available, the economy gets much less of what they need than if income was more widely spread out and in the hands of people more likely to spend it than to invest it.