OKLAHOMA LAW REVIEW
All in all, the United States has significant inequality in the distribution of earned income, and that earnings inequality has increased by about 25% over the past few decades.
2. Inequality in the Distribution of Investment Income Another reason why the free market’s distribution of income is so unequal has to do with the increasingly unequal distribution of investment income. Relatively few well-off households receive the lion’s share of this nation’s investment income.
For example, Figure 5 shows the distribution of wealth in 2001. The top 1% of households had more than a third of the nation’s wealth that year, and the top 20% had more than 84% of wealth. Meanwhile the bottom 40% of Americans had, and has, less than 1% of the nation’s wealth.
C. What Should the Government Do?
The basic problem is that free markets generate much more inequality than is needed to ensure the adequate production of goods and services. Some people just get more than they deserve, and some get less than they deserve.
That’s where the government comes in. One of the central functions of modern governments is to reduce economic inequality. To be sure, there is considerable debate as to just how much the government should do to reduce economic inequality. It is perhaps easiest to articulate the two most extreme sides of that debate: egalitarianism and libertarianism.