The Core Problem of Economic Inequality: How Much Is Too Much?

Yves here. Please welcome Maurizio Bovi, who has raised a useful question: most outside our putative elites, and even some in them, deem inequality to be a bad thing…but then they often concede that it’s a good thing if it reflects meritocratic practices, or if (in a more passive form), “talent” has risen to a privileged position. So which is it?

A sad truth is that those in advantaged positions seek to create status differences that exceeds what is in their best interest. Michal Kalecki, in his classic 1943 essay on the obstacles to achieving full employment, describes in a carefully reasoned essay that among other things predicted the eventual arrival of negative interest rates, how businessmen would oppose policies that would produce full employment even though they would earn more income at full employment than otherwise. Both of the main reasons had to do with status. Full employment would reduce the power gap between bosses and labor. It would also require an active government role, curbing their influence and pretenses of indispensability.

Another example: as we have pointed out since the inception of this website, highly unequal societies impose a lifespan cost even on the wealthiest. From 2007 in Happiness, Health, and Inequality:

Happiness was a central concern of early economists. Jeremy Bentham (1748-1832), who was in many ways ahead of his time (he advocated animal rights, divorce, free trade and homosexuality), thought that the objective of public policy was to create the greatest happiness of the greatest number, which he called the principle of utility.

Unfortunately, later economists chose instead to focus on things they could readily measure (plans for a “hedonimeter” never came to fruition), and consumption and production were generally treated as proxies for utility….

And what makes people unhappy? Losing one’s job makes people very unhappy and often leads to depression. In fact, income inequality not only makes people unhappy but actually reduces their life expectancy, and not for the reasons you would think. The Financial Times’ Michael Prowse explains:

But recent epidemiological research suggests that finance ministers, too, may some day be required to issue health warnings. There are good reasons to believe that policies that promote greater economic inequality – such as budgets that slash top tax rates – cause higher rates of sickness and mortality….

In Britain, these new arguments are most closely associated with Richard Wilkinson, a professor at Nottingham University’s medical school. Wilkinson has spent much of the past two decades painstakingly assembling the evidence for a link between inequality and sickness. But researchers elsewhere, such as Ichiro Kawachi and Bruce Kennedy of the School of Public Health at Harvard University, have independently confirmed many of his claims.

Those who would deny a link between health and inequality must first grapple with the following paradox. There is a strong relationship between income and health within countries. In any nation you will find that people on high incomes tend to live longer and have fewer chronic illnesses than people on low incomes.

Yet, if you look for differences between countries, the relationship between income and health largely disintegrates. Rich Americans, for instance, are healthier on average than poor Americans, as measured by life expectancy. But, although the US is a much richer country than, say, Greece, Americans on average have a lower life expectancy than Greeks. More income, it seems, gives you a health advantage with respect to your fellow citizens, but not with respect to people living in other countries….

Once a floor standard of living is attained, people tend to be healthier when three conditions hold: they are valued and respected by others; they feel ‘in control’ in their work and home lives; and they enjoy a dense network of social contacts. Economically unequal societies tend to do poorly in all three respects: they tend to be characterised by big status differences, by big differences in people’s sense of control and by low levels of civic participation….

Unequal societies, in other words, will remain unhealthy societies – and also unhappy societies – no matter how wealthy they become. Their advocates – those who see no reason whatever to curb ever-widening income differentials – have a lot of explaining to do.

Yet those at the top in most of the Anglosphere keep scheming to increase their advantaged positions, at their personal cost, as if more time with a trainer and more expenditures on Dr. Moonbeam longevity treatments can compensate for the corrosive effects of high levels of inequality.

By Maurizio Bovi (PhD), of the Italian National Institute of Statistics and Sapienza University

Economic inequality—encompassing disparities in income, wealth, and consumption—is an issue that profoundly affects individuals and societies. On the one hand, rewarding talent, hard work, and innovation stimulates growth and progress. On the other hand, economic inequalities (hereafter, for brevity, “inequalities”) concentrate advantages in the hands of a few, often leaving many behind regardless of their efforts or abilities.

Inequality arises from a mosaic of factors: opportunity, incentives, social mobility, merit, freedom, institutions, ethical values, and social capital, among others. This complexity makes the interpretation—particularly the normative assessment—of measurement tools such as the Gini coefficient or interquintile ratios problematic. Consider two individuals who, ceteris paribus, freely choose to work different numbers of hours: the data will show an income disparity, but is this truly an issue?

However, this discussion focuses on another, still unresolved and more pressing question for those studying economic inequality: the lack of sufficient agreement on what constitutes a tolerable (or acceptable) level of inequality. To be clear, we consider any inequality stemming from a lack of equal opportunity, segregation, or discrimination intrinsically intolerable. At the same time, it must be acknowledged that “not intolerable” does not automatically mean “acceptable.” Some inequalities may be tolerable, but the precise definition of “tolerable” remains deliberately open, reflecting the complexity of the phenomenon and the absence of consensus on its permissible boundaries.

Given individual experiences, it is easy to see that public opinion on this issue varies widely. Data confirm. According to a Pew Research Center survey,[2] approximately six in ten US adults state that there is too much economic inequality in the country. However, the remaining 40% hold a different view, which is a noteworthy share. Furthermore, aggregated data obscures the underlying heterogeneity. The same survey shows that thoughts diverge across the political spectrums. Democrats are nearly twice as likely as Republicans to say there is too much economic inequality in the United States (78% vs. 41%). Among those who believe there is too much economic inequality, seven in ten accept some level of it. This holds true for majorities of both Democrats (68%) and Republicans (77%). Further analysis reveals that views on economic inequality differ across income levels. Among upper-income adults who perceive excessive inequality, 85% find some inequality acceptable, compared to 72% of middle-income and 59% of lower income adults. However, there is no common definition of “too much” or “some level.” Notably, these differing perspectives are not unique to the United States. Recent research using survey data from 40 countries demonstrates widespread disagreement on acceptable levels of inequality.[3] There is also evidence that fatalism—which varies across individuals—may influence judgments on the tolerability of inequalities.

There may also be internal conflicts at the personal level. Those morally troubled by economic inequalities might feel equally uneasy at the prospect that their own efforts and achievements are not fairly recognized. Yet, such recognition inevitably generates inequalities.

International agreements seem to reflect this complexity as well. The UN’s Sustainable Development Goal (SDG) 10, “Reduced Inequality,” highlights disparities related to income, gender, age, disability, race, and other factors. The message is clear: sustainable development must be inclusive. However, the wording is telling: the goal is to “reduce” rather than “eliminate” inequality, possibly because no consensus exists on the issue of economic inequality. This stands in stark contrast to SDG 1, “No Poverty,” which aims for total eradication—likely due to broader agreement on the harms caused by poverty.

Two leading economists, widely recognized experts on inequality, reinforce the importance of this issue.

Anthony B. Atkinson writes:[4] “I am not seeking to eliminate all differences in economic outcomes. I am not aiming for total equality. Indeed, certain differences in economic rewards may be quite justifiable. Rather, the goal is to reduce inequality below its current level, in the belief that the present level of inequality is excessive.”

Joseph Stiglitz advocates for greater equality than currently exists in the United States, arguing:[5] “We (or at least most of us) believe in equality, not complete equality, but far more than that characterized by today’s economy.”

What is considered “excessive” or “not complete equality,” however, remains undefined.

Even more concerning—and this is the main point—is the lack of consensus among philosophers. Despite the high level of theoretical abstraction in their discourse, where agreement should be more readily achieved, the crucial question—“What makes inequality morally tolerable?”—continues to yield deeply divergent answers.

Sufficientarianism seeks to ensure that everyone has “enough;” limitarianism argues that possessing resources beyond what is needed for a fulfilling life is morally unacceptable. Another key issue is the role of luck in personal success. Some consider luck acceptable, while others do not, and the literature distinguishes between “brute luck” (circumstances beyond one’s control) and “option luck” (voluntary choices with uncertain outcomes). Generally, there is agreement on compensating for brute luck, whereas opinions on option luck remain divided.

Utilitarians tolerate inequality only if it increases overall happiness or satisfies majority preferences. John Rawls argues that some inequality is morally justified if it improves the condition of the least advantaged in terms of “primary goods.” Amartya Sen, in contrast, focuses less on resources and more on capabilities—true well-being is about people’s freedom to do and be what they value. As per inequality, according to the capability approach income should not be equalized between two people with different psychophysical abilities. Rather than focusing on inequality, indeed, Sen’s proposal concentrates on the poor and disadvantaged.

While these (and other) theories acknowledge that some inequality may be acceptable, they differ sharply on the underlying reasons and hence, on its size. In contrast, radical egalitarianism advocates for an almost equal distribution of resources, asserting that inherent differences between individuals do not morally justify unequal treatment.

Each of these distributive principles has strengths and weaknesses, preventing convergence toward a universally superior approach. Sufficientarianism and limitarianism, while theoretically appealing, have yet to resolve the problem of defining precise thresholds. Allocating goods based on preference intensity, as utilitarianism suggests, is efficient—but not always morally defensible. Consider an individual with an insatiable desire for luxury food and cars: should society indulge such extravagant whims? While Sen’s capability approach centers on individuals lacking substantive freedoms (e.g., the poor, marginalized, or disabled), it remains less clear how the framework addresses the majority who do not face such deprivations. Meritocracy targets this group and has advantages—but only under certain conditions and not for marginalized populations. Strict egalitarianism carries ethical appeal but risks weakening incentives, hindering social mobility, reducing civic engagement, and fostering dependency on welfare.

The discussion could continue,[6] but the central point remains: there is still insufficient consensus on what constitutes a morally acceptable level of inequality—with profound implications for social, normative, and measurement frameworks.

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[1] This article is based on Bovi, M (2025) “The Dual Challenge of Tolerable Economic Inequality,” Springer

[2] Horowitz J M et al. (2020) Most Americans Say There Is Too Much Economic Inequality in the U.S., but Fewer Than Half Call It a Top Priority, January 9, PEW Report.

[3] Pedersen RT, Mutz D C. (2019) Attitudes Toward Economic Inequality: The Illusory Agreement. Political Science Research and Methods, 7(4):835–851.

[4] Atkinson, A B (2015, p. 9), Inequality: What Can Be Done? Cambridge, MA: Harvard University Press.

[5] Stiglitz J (2020, p. 228) People, Power and Profits: Progressive Capitalism for an Age of Dis-content, New York/London, W.W. Norton and Co.

[6] Cf. Bovi, M (2025) op.cit.