Transfer programs and the social safety net

0:00- [Presenter] So now, we're gonna talk about a topic that people have very different opinions about, but it's good to understand how people think about it. So it's this idea of wealth inequality, that not everyone is going to have the same amounts of wealth. And in certain cases, it can become pretty extreme that a lot of people or some people have a lot more wealth than some other people do.

0:22Now if I were to stereotype between the types of economies we have studied, on one end, you can have a command economy where you have some central authority that's deciding who gets what. And these are oftentimes associated with things like communism or socialism.

0:41And these are also oftentimes associated with very little, very little inequality. Anyone in a certain place doing a certain job maybe gets the exact same thing, but it's also because oftentimes there aren't incentives for people to innovate. Entrepreneurship is oftentimes squashed.

1:03There is very little wealth. Very little wealth. Now on the other side, we can imagine a market economy over here. And in a market economy, people might imagine a strongly capitalist economy. They might think about places like the United States, but I'll talk a little bit why the United States isn't a perfect market economy.

1:29But because of that, you have some people, they're investing, there's entrepreneurship, there's a lot of innovation. So maybe lots of innovation. Lot of innovation, entrepreneurship, and that leads to wealth. But some people, maybe they have their tech companies and they become very wealthy.

1:49Other people tried to do things, they weren't able to make it or they get automated out of a job. So there is lots or a lot of inequality. Inequality. And we can talk about why either of these extremes might not be so great. Obviously in a command economy, everyone might be equal, but they might be equal at a very low level.

2:15During the Soviet Union, a lot of people were equal, although people who were doing the commanding oftentimes got a little bit extra for themselves. But because a common person had very little ownership over things and very little incentive to do things, there wasn't a lot of productivity and people used to wait in line for bread and for things that we take for granted.

2:35While in a market economy, lot of innovation, lot of entrepreneurship. Oftentimes, the shelves are stocked with food and goods and you can buy it, but there are going to be winners and losers. And the issue here is, is if the difference between winners and losers becomes too big, imagine a world where these folks right over here are the winners and then these folks here are barely getting by.

3:03These folks in yellow here outnumber the folks in green. They might not like how things are set up. They might try to perhaps use the government in a democracy where in general, talking about majority rules in order to say, "Hey, give us some of that. Give us some of that."

3:23And there might even be a situation where it might be rational for some of these people to give some of it. Because the more people that maybe get to the middle class, they're less likely to lead to a revolution. They can be consumers in an economy. It might even lead to some of that money going back the other way.

3:44Because if they're in a good situation, if they're not just living in the most basic conditions, then they might have some spending money. Then it might even go to the other folks and the whole economy as a whole might be good. So there's a general argument in a mixed economy and we could debate different types of mixed economies, but even things that are very capitalist like the United States would be considered a mixed economy.

4:08To have some form of wealth redistribution in order to tackle wealth inequality. How does that wealth redistribution work in say, the United States? Well, you have programs like Social Security. Social Security. One, you could argue just from a values point of view.

4:28If someone is elderly, they're retired, we, who are still working should be able to help support them. And they might have contributed for many years helping to support others. So that might be a situation where you're taking some resources through taxation or through other things from those who are producing and have getting income to those maybe who are elderly and who are retired and making sure that they have a basic standard of living.

4:52And once again, we're all gonna get old one day so it's nice to know that there is a safety net there. There might also be unemployment compensation. Unemployment. And I can tell you, personally, it's great to have a job and but if you lose that job and you have to support yourself, you have to support your family, that could be incredibly stressful and have all sorts of negative implications on society.

5:16So maybe we want to create a safety net there that if someone were to lose their job... Let's say, this person right over here was making money, but then they go into this category once they lost their job, something to keep them going and hopefully keep them going in a way that they can get back into the economy.

5:30But that is another form of wealth redistribution. You also have things like welfare payments where society might say, "Hey, we just want people to have a basic level of being able to feed themselves maybe with food stamps, basic housing, basic medical." You might hear of things like Medicaid to support folks who are very low income to get some form of insurance.

5:55Just because as society we say, "Hey, those our values that if someone needs healthcare, they should have it." But it also could feed into the broader economy because if someone is not healthy, they might not be able to work, they might not be able to participate in the economy.

6:10Now people debate this and a lot of the debates we have in politics it's about how far do we go in this? Then maybe we want to provide some more basic supports. But if you provide too many supports, it might take resources away from the economic engine that's actually generating the wealth.

6:27You might overtax the folks who are entrepreneurs or the innovators or the companies. Maybe they go choose to invest elsewhere or maybe they don't have as much profit to reinvest in the business to keep that innovation and so then they can't compete. At the same time, if you don't invest enough, you might not be building a broad middle class, people who can participate in a broader economy.

6:49You might have an unstable society and that leads to a revolution and that might lead to an extreme going in the other way, which I think many folks would not want. So it's an interesting thing to debate and think about.