Chapter 3 Chapter 3

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Chapter3: Markets and InequalityI.Beyond Market Forces:

Themarket forces are real and are shaped by the prevailing politicalprocesses whereas the markets are shaped by the regulations, laws, aswell as institutions.

I.Corporate Governance:

Differentcorporate governance policies or laws have the potential to tame theunbridled zeal of the executives, but reforms in the corporategovernance can make the economy more efficient.

Evidence:weakerunions as well as the weaker social cohesion working with thecorporate governance laws give the management huge discretion to runthe corporations for their individual gain.

II.Discrimination: Marketscan create discrimination which leads to greater inequality.Discrimination is a major force in the society that affectsinequality.

Evidence:Matchedpair field experiment by Devah Pager

II.Role of Government in Redistribution

Thissection aims at outlining the way the government uses the tax policyto try and balance the inequality level that has been brought aboutin the prior-tax incomes as well as the transfers. The sectionoutlines a brief history of the U.S presidents and their attempts tolower the top marginal tax rate in a bid to bring about equality. Thenet effect of the government role in redistribution regards thesuper-rich paying on average a reduced tax rate as opposed to theless well-off individuals and the reduced tax rate implying that theriches of the super-rich growing faster.

Governmentand Opportunity

Thissection describes the United States as being a society of inequalityof opportunity.The administration has undertaken fewer measures tocountervail the market forces that consequence to increasedinequality of opportunity.

Evidence: withregard to differential access to jobs as well as human capital,evidence shows that the administration has been doing less to levelthe playing ground in the financial capital following lessprogressive taxation and lower inheritance taxes. Increased level ofinequality in financial capital and human capital anticipated in thefuture.

TheBig Picture

Thegovernment is partly responsible for the before-tax distribution ofincome inequality and, as a result, has taken a diminished role inaddressing the problem via expenditure policies and progressive tax.

a.Justifying inequality:

Thenotion that the individuals who got more did so for the reason thatthey had made huge contributions to the society has become aprevailing doctrine in the area of economics.

Evidence:Theindividuals who perfected the novel predatory lending skills andhelped in the creation of derivatives as outlined by Warren Buffettdevised the irresponsible new mortgages that led to the subprimemortgage crisis allowing them to walk away with millions of dollars.

b.Is inequality necessary to give people incentives?

Thequestion confuses two positions one is that there should be noinequality, and the other is that the world would be better off withless inequality. However, the author argues that less inequalitywould enhance productivity.

Evidence:Evidenceof this argument is available under the incentive compensation schemewhere pay is supposed to increase following performance.

c.Parsing out the sources of inequality

Thissection argues that less progressive tax, as well as expenditurepolicies, leads to an increased level of after-tax as well astransfer income.

Evidence:Theinequality in a number of countries growing to levels that it can nolonger be ignored.


Stiglitz,J. E., (2013). The Price of Inequality: How Todays Divided SocietyEndangers out Future. W. W. Norton &amp Company, 1st ed. ISBN-13:978-0393345063