However, there is another point of view, according to which inequality in general is useful for stimulating economic growth, for improving the quality of life of all members of society and is an integral part of social progress. Doctor of Economics, an employee of the Institute of Economics of the Russian Academy of Sciences Olga Kislitsyna has collected several examples that refute the theory of "utility of inequality" ("Bulletin of the Institute of Economics of the Russian Academy of Sciences", No. 3, 2020). Some excerpts from her work.
Inequality is fair.
This argument of defenders of inequality is that trying to combat economic differentiation means opposing nature itself. People from birth have different qualities and talents; the rich have more money because they are more skillful and hardworking. If someone is dissatisfied with their income, then they should study and work more. And those who oppose inequality are driven by "envy of the rich, not compassion for the poor."
It cannot be said that the principle of meritocracy is being implemented in the modern world. Successful people don't necessarily have any natural talent. They may have ordinary mental abilities, but it is the luck of being in the right place at the right time that determines success. In addition, some people receive super profits largely due to inheritance, lobbying (nepotism, connections), and crimes. For example, in Russia, according to a report by the Peterson Institute for International Economics, the majority of billionaires (64%) amassed capital through political connections and access to resource extraction; and only 10.8% - as company founders, 3.6% - as top managers. According to the rating of The Economist magazine, which ranks countries according to the degree of prevalence of “crony capitalism” in them, Russia took first place in 2016.
The trickle-down theory.
According to this theory, if some people receive additional income, the benefits from it may “trickle down” to others. For example, when an entrepreneur starts a business, he gets the opportunity to get rich, create jobs and provide income for other workers. Reducing the tax burden on the rich leads to an increase in their income, investment, and productivity. As a result, economic growth is accelerating, which ultimately improves the lives of the poorer segments of society. Thus, everyone wins.
This theory, as well as the economic policy of Reagan based on it, was criticized and refuted by both practice and scientific research. It is called a monstrous lie designed to justify the rich getting richer. A recent IMF report shows that the theory not only fails, but also backfires, effectively reducing the country's GDP. It has been proven that if the income share of the top 20% of the population increases, GDP growth actually decreases in the medium term. This means that income does not trickle down. In contrast, higher GDP growth is associated with the income of the poorest 20%. The report concludes that the socioeconomic position of the poor and middle class is most important for economic growth. Studies show that the wealth of the super-rich does not “trickle down”, but tends to take refuge in “tax havens” (offshore), which negatively affects the tax base of the country's economy.