Question

Discuss the long term issues with the US income inequality levels for the US economy.

Answer 1

There are different long term issues, the US economy can face when income inequality persists in the economy. The first issue is the growing level of poverty rates among the lower income class people, as rich people will become more rich and poor will become more poor in the US economy. It will create problems at a social level. The second issue is the creation of additional financial burden upon the resources to generate funds to run the social security programs, Medicaid, Medicare and other relief programs. It will put the government to diver the funds from development based activities to the disbursement of benefits to the poor and marginalized class of people. It will cause economy to suffer. If government takes more loans to finance it, then debt burden as a % of GDP increases and makes future generations to suffer in the form of higher deductibles, higher tax and lower benefits. The third issue is the slower economic growth, because most of the funds will go for the consumption, and less of the funds will go to the capital formation. It will slow the economy and everyone in the economy will suffer. Besides, populist promises, will further put pressure upon the economy, as income inequality, will force these politicians to make lofty promises to win the election and more financial burden to the economy takes place.