Can you have too much income equality?

Income inequality has become one of the primary concerns of program evaluators who wish to participate in creating a more equitable society, but is it possible to have too much income equality? The Soviet Union provides an interesting case study. Socialist economists Nikolai Shmelev and Vladimir Popov observed that the Soviet Union in the 1980s had much more income equality than did the United States. This is because prices and wages were determined by government officials rather than the profit and loss system of the market. Even though the Soviet Union had more equality than the United States, they were far worse off than the average American in material terms. By removing the possibility of being rewarded for harder work or greater efficiency, the quality and quantity of goods and services were abysmal. Shmelev and Popov state that Soviet price controls and leveling wages “…created a welfare mentality” where workers knew they could never get rich but also that they would always have employment (p. 177). This government mandated equality “suppresses any incentive to work, causes shake-ups, lack of discipline, and a parasitic certainty of a guaranteed income that does not depend on one’s actual contribution to the job…” (p. 187). I personally would rather be unequal and prosperous than be poor and equal.

Reference

Nikolai Shmelev & Vladimir Popov (1989). The Turning Point: Revitalizing the Soviet Economy. Doubleday.