Table: Annual household market and disposable income by quintiles
| Quintile Group | Market Income (£ per year) | Disposable Income (£ per year) |
|---|---|---|
| Top 20% | 98,000 | 72,000 |
| Fourth Quintile | 52,000 | 44,000 |
| Third Quintile | 31,000 | 35,000 |
| Second Quintile | 16,000 | 26,000 |
| Bottom 20% | 7,500 | 20,500 |
Advocates of market liberalism contend that a degree of income and wealth inequality is not merely unavoidable but is essential for driving a dynamic, prosperous economy. Under competitive conditions, factor rewards align with marginal productivity. This incentivizes human capital development, hard work, and risk-taking. Entrepreneurs who innovate are rewarded with higher returns, leading to capital investment and job creation. By allowing the successful to retain their gains, the 'economic pie' grows larger. Over time, the benefits of this expansion trickle down to the wider population, raising absolute living standards for everyone, even if relative inequality increases.
Opponents argue that unchecked inequality creates severe systemic risks and drags on economic growth. A highly unequal distribution of income shifts purchasing power to the wealthy, who have a much lower marginal propensity to consume (MPC) than lower-income households. This depresses aggregate demand, forcing reliance on unsustainable household debt to maintain living standards. Furthermore, excessive concentrations of capital often fuel speculative bubbles in financial and real estate markets rather than productive investment. Lastly, vast wealth disparities lead to political capture, where powerful lobbies weaken regulatory standards and protect monopoly rents, harming overall economic efficiency.
Extract B suggests that allowing individuals to retain higher returns on their economic activity "incentivizes human capital development... and raising absolute living standards for everyone".
Using the data in the extracts and your economic knowledge, assess the view that rising income and wealth inequality is ultimately beneficial to society.
