The efficiency of the market can be judged by a fair estimate of the true value of the investment. The market efficiency does not require the market price to be equal to the true value at all times, but the errors must be unbiased in the marketplace.
When we look at the growth over a long-term, the trade-off between efficiency and equality does not exist. Equality is more important in promoting the economic growth. Most of the countries think that by improving the equality, efficiency may also be improved in the marketplace.
It is true that extreme inequality in the income is a bad thing and most of the conservatives believe that the whole matter of income distribution must be banned from the public discourse (Krugman). The efficiency costs of redistribution are small but according to the conservatives, it is large enough. They argued that pursuing equality may reduce efficiency. Equal distributions of income will reduce the incentives to work, but the redistribute efforts will themselves be costly enough. But it is also true that if anything is done to reduce the inequality, it would greatly affect the GDP. But in today’s world, if actions are to be taken to reduce the inequality, it would probably increase the economic growth.
A variation can be seen in the income inequality in most of the advanced countries. In the US and Britain, the disposable income is unequally distributed as compared to France and Germany. This difference is due to the different government policies.
The prices of factors of distribution are determined by the marketplace. In turn, the factor prices determine the income of the citizenry. These incomes provide incentives that contribute to the efficiency. Economic inequality is also the result of market-determined incomes. Income equalizing means the modification of the market determination income.
It is not necessary that working on the income inequality issues would help everyone. The affluent would lose more and more from higher taxes as compared to the profit from the economic growth. But working on the inequality would be good both for the poor and the middle class as well.
References
Krugman, Paul. "Liberty, Equality, Efficiency". Nytimes.com. N.p., 2014. Web. 21 Mar. 2016.
