Should investors care about how the economic pie is divided up? In general, they are likely to be well-disposed to a certain amount of inequality. Corporate managers need incentives if they are to maximise returns on capital. Adam Smith’s invisible hand only operates if people are allowed to pursue their private gain. Incentives foster innovation. Few iPhone users will begrudge Steve Jobs’s vast fortune. Furthermore, as Keynes observed of 19th century Britain, inequality begets savings which in turn generate capital investment and economic growth.
There’s a darker side to inequality associated with rent-seeking, corruption and macroeconomic imbalances. “Bad” inequality soared in the United States before the financial crisis. Today, it threatens China’s path to economic prosperity.
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Related books:
The Haves and The Have-Nots
The Party
