Because humans compare themselves to others, not to an absolute standard of wealth[1]. If you work as hard as others, and they get rich and you don't, it's hard not to feel devalued - personally devalued, not just that your work isn't valued.
And then, if enough people feel devalued by society, they have a tendency to decide that the existing order is their enemy, and to act to try to bring an end to the existing order. That tends to work out very badly - especially for the dead, but also for the wealthy and for the existing order.
So the existing order had better care about wealth disparity. Even if it doesn't care for the sake less-well-off, it had better care for the sake of preserving the existing order.
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[1] But we also have far too many people that fall below any reasonable minimum absolute standard.
There are several ways in which wealth inequality can cause slowed economic growth:
Consumption inequality: When the distribution of wealth is highly unequal, a large portion of the population may not have the disposable income to purchase goods and services, which can lead to slowed economic growth.
Investment inequality: Wealthy individuals and businesses tend to have more access to capital and investment opportunities, which can lead to a concentration of investment in certain sectors or geographic areas. This can lead to imbalances in the economy and hinder overall growth.
Education inequality: Wealth inequality can lead to differences in access to education and other opportunities that are important for developing human capital. This can limit the potential for economic growth in the long run.
Political inequality: Wealth inequality can lead to differences in political power, which can result in policies that favor the interests of the wealthy at the expense of the broader population. This can lead to slowed economic growth and increased inequality.
Social instability: Extreme levels of wealth inequality can lead to social unrest and conflict, which can disrupt economic activity and lead to slowed growth.
Political inequality refers to the unequal distribution of political power or influence within a society. It can occur when certain groups or individuals have greater access to the political process, such as through campaign contributions or lobbying efforts, or when certain groups or individuals are disproportionately represented in positions of political power.
Political inequality can have significant consequences for economic policy and can contribute to wealth inequality. For example, if a small group of wealthy individuals or businesses have disproportionate influence over the political process, they may be able to shape policies that benefit their own interests, such as lower taxes or deregulation, at the expense of the broader population. This can lead to policies that favor the interests of the wealthy and contribute to increasing wealth inequality.
Political inequality can also lead to a lack of representation for certain groups, such as lower income individuals or minority groups, which can further exacerbate economic inequality. This can result in a lack of support for policies that address economic inequality, such as progressive taxation or social welfare programs, and can hinder efforts to address wealth inequality.
does wealth inequality cause asset prices to go up? and what would the consequences of that be?
It is possible for wealth inequality to contribute to higher asset prices in some cases, as those with greater wealth may have more resources to invest in assets such as stocks, real estate, and other financial instruments. When demand for these assets increases, it can drive up their prices.
However, it is important to note that there are many factors that can influence asset prices, and wealth inequality is just one of them. Other factors, such as economic conditions, interest rates, and market sentiment, can also play a role in the movement of asset prices.
The consequences of higher asset prices can vary depending on the specific context. In some cases, rising asset prices can be a sign of a healthy and growing economy, as they can indicate that investors have confidence in the future prospects of the economy. However, if asset prices rise too quickly or become disconnected from underlying economic conditions, it can create asset bubbles that are unsustainable and can eventually lead to a sharp decline in prices. This can have negative consequences for those who have invested heavily in these assets, as well as for the broader economy.
Statistically, high wealth disparity correlates with reduced happiness and well-being even for the very wealthy. Historically, high wealth disparity seems correlated with unstable societies.
I think it's a casual factor in societal instability, not merely a correlation. You can only drive one car at a time, live in one house at a time. At some point, money mostly just becomes power, not usable wealth in a real first-person daily experience kind of sense. Then, you have upper and lower classes...the upper, in some sense, even the best of them, exploiting the lower class because one pair of human hands can only make so many goods and so have unfair and disproportionate capture of wealth created due to the synergy of society, and the lower resenting the upper class for obvious reasons.
Wealth disparity is also useful, but it can get out of hand, in my opinion.
It is just another data point. With everything else equal, I am unconcerned about where the money is cloistered. The correlation between FED actions and wealth distribution is interesting in the least.
Many economic indicators are useless alone. When combined with other data they create a picture. For instance, if I tell you the price of gold per ounce went up today, that information is relatively useless, even if you own gold. If I add that the USD went down, then we can be pretty certain that the gold asset price went up due to the fact that the currency that it is priced in went down.
The wealth disparity information combined with tax and monetary policies creates a picture as well.
Off topic, but the way you used "in the least" made me do a double take. That's one of those phrases that's perfectly correct, but is so often seen in the opposite context (i.e. "not in the least interesting") that I had to stop and reread it.
Do you think anyone would be happy living in a world where a few have access to all the world's resources and others have essentially no access? Wealth is a essentially a claim on a share of the world's resources. They are limited.
Edit:
To put it another way, imagine growing up with siblings that had the full run of the house, three square meals a day, free use of all the toys in the house, and control of what you saw on any given screen and the music you heard, while you had a single toy, a single meal each day, and were confined to a room that you had to share.
