Robert Douglas summarizes the argument against inequality presented by Andrew Leigh, economist and (Labour) parliamentarian, in his book Battlers and Billionaires:
Leigh sees inequality as a socially corrosive force undermining the egalitarian spirit that has been one of the positive defining characteristics of Australian society. He argues that unequal wealth demands attention from our political system and that there are a variety of ways in which it can be addressed.
There has been much hand-wringing from the left about rising inequality, but I believe this is an attempt to frame the political debate along class lines — the rich against the rest — as Barack Obama succeeded in doing, with the able assistance of Mitt Romney, in 2012. Framing the debate in relative terms is shrewd politics. An attempt to distract voters from the real issues:
- Is poverty rising or falling?
- Is general health, as reflected by life expectancy, improving or deteriorating?
Poverty is a subjective concept, as Thomas Sowell points out:
Most Americans with incomes below the official poverty level have air-conditioning, television, own a motor vehicle and, far from being hungry, are more likely than other Americans to be overweight.
Life expectancy, however, is difficult to fudge.
Inequality, as I said earlier, is relative: we can have declining poverty and rising life expectancy while inequality is growing. In fact when the economy is booming and employment rising, inequality is also likely to be growing. Do we really want to kill the goose that lays the golden eggs? Raising taxes to discourage new entrepreneurs? That is what targeting inequality can succeed in doing: harming the welfare of all rather than improving the welfare of the poor at the expense of the rich.
Instead we should focus on job creation and health improvements. And if that means creating incentives to encourage entrepreneurs, so be it, provided we all benefit.
The fact that inequality rose after the GFC is an anomaly that is unlikely to persist in the long term. The wealth of the masses are predominantly represented by real estate, while the rich hold a far higher percentage of their wealth in financial assets: stocks and bonds. Housing was hardest hit by the GFC and has taken longest to recover, causing a surge in inequality readings. That is not the fault of the rich — apart from a few investment bankers — and in fact we should learn from their experience. Real estate investment may have served us well in the past, but that is likely to change with the end of the credit super-cycle. We will need to concentrate a far higher percentage of our investment in stocks and bonds.
Read more at Inequality, health and well-being: time for a national debate.
Inequality is the driving force of life, the universe and everything. Without it nothing happens. Electricity doesn’t flow unless there’s a dearth of electrons at one end of the wire. Football doesn’t get played if everyone has their own ball. Survival is driven by taking resources from those who can’t hold onto it (eggs from chooks, apples from apple trees, footballs from the opposition) thereby leaving the original owners with an incentive to get smarter. If you go down to the gene level the same thing happens. Genes are constantly stealing from each other because of inequality. Without that process we wouldn’t have the luxury of being alive to write about it.
Inequality isn’t evil, it’s essential.
But since I’m sure I’m not telling you anything you don’t already know, I suppose the grand question is how does mankind’s very unnatural invention of Society manage (re-balance) inequality from time to time to ensure a few individuals don’t own so much that everyone else finds it necessary to pick up weapons and use the more natural approach of violence to do the rebalancing.
In my opinion with capitalism inequality is inevitable. This is because those with surplus capital beyond their means can invest and get a return on that capital which with time will compound while those that don’t have enough capital will spend there life laboring to make ends meet. Therefore there will be one segment getting richer while another is getting relatively poorer (perhaps not in nominal terms).
This can be evidenced on a macro level by having people in one part of the world getting fatter while the other suffers form hunger. You will also notice in the part of the world where people are getting fatter they generally have access to leisure time and surplus capital. That part of the world which suffers from hunger don’t have leisure time and spend their life only laboring and don’t have surplus capital as what they have can only be spent on life necessities.
In my opinion poverty should be defined in terms of standard of living rather than a nominal dollar amount which means nothing. If I were to only earn $2 a day I would prefer this to be in a poorer country rather than a richer one. In fact in western countries we have gotten to the stage where a poor person today would be regarded as rich by 1800’s standards with all the material items they own and access to resources such as food and energy they have. Hence, a focus on basic standard of living should be the focus in terms of defining people as poor or unequal.
The reason we have such a surreal degree of inequality is that we do not have capitalist societies in the sense of the creative entrepreneur producing goods and services. USA and Australia are economies based on rents, not production.
This article
http://news.firedoglake.com/2013/06/21/consensus-emerging-with-economists-that-u-s-economy-based-on-rents-not-production/
quotes economist Michael Hudson and more mainstream economists Joseph Stiglitz and Paul Krugman.
“bankers have prevailed subjugating the productive forces of industry to the power of debt slavery and rentier capitalism. The real economy has been subsumed by the FIRE economy.”
This series of three articles by Michael Lind is on similar lines:-
http://www.salon.com/2013/03/21/private_sector_parasites/
http://www.salon.com/2013/03/22/how_rich_moochers_ruin_america/
http://www.salon.com/2013/03/25/defeating_useless_rich_people/
“You don’t have to be a Tea Party conservative to believe that the economy is threatened when there are too many “takers” and not enough “makers.” The “takers” who threaten the dynamism and fairness of industrial capitalism the most in the 21st century are not the welfare-dependent poor — the villains of Tea Party propaganda — but the rent-extracting, unproductive rich.”
There would be a reasonable degree of inequality if in a fair society it was only based on the talent and ability of individuals and the opportunity provided by their parents. How much would you expect a very able person to be worth? Ten or twenty or fifty times average income?
Instead comprehending the degree of inequality is almost like trying to comprehend intersteller distance or geological time.
Here is the URL to just one of the many studies on the degree of inequality:-
Thank you all for the excellent comments. I would suggest that Orwellian images of the rent-extracting, unproductive rich and the dole-bludging poor are a vast over-simplication of the problem.
Almost 100 years of tinkering with the capitalist system have failed to deliver greater equity nor greater prosperity. We certainly do not want to emulate the experience of Britain in the 1960s and 70s. I believe in social equity. Each person should be afforded equal opportunity. But attempting to engineer equal outcomes achieves neither social equity nor prosperity.
We need to set two goals as society:
Our problem comes when we confuse the two goals, and through re-distributive mechanisms — like progressive tax rates, rent-control and excessive labor legislation — attempt to shift the welfare burden of the state onto capitalist producers. What we instead achieve are disincentives to create new jobs and build new factories. Emergence of a rising “permanent casual-worker” class is just one such symptom of the underlying malaise — entrenching inequality while attempting to redress it.
Thought you might appreciate this:
In Australia the legislation for tax says that “ability to pay” is the major criteria for equity. This has been described as the highwayman’s tax as in “you’ve got it so I’ll take it”.
Geonomics argues for a “beneficiary pays” system, so that those who gain most, pay most, but this is not accepted by many (if any) decision makers.
If it was the objective would be to
1) slash income tax
2) slash company tax
3) redo the MRRT @ 50% of net profit, on a partnership basis between miners and Australians as owners of the resource
4) re-institute the federal land tax (so state land taxes, stamp duties and payroll taxes can be abolished)
Taxation on labour and capital plus skyrocketing land prices have amounted to record household debt and its corollary, little disposable income/effective demand.
Philosophers from John Locke and Adam Smith have put forward the idea that the Earth be regarded as a global commons and that its economic rents be the source of community funds. This idea was lost in the late 1800,s with the ascendency of Neoclassical economics which not surprisingly developed in universities funded and controlled by wealthy businessmen like JD Rockefeller and JP Morgan.
This article by Joseph Stiglitz shows the “ability to pay” tax system has delivered very low tax rates to the very wealthy :-
http://opinionator.blogs.nytimes.com/2013/04/14/a-tax-system-stacked-against-the-99-percent/
“Citizens for Tax Justice, an organization that advocates for a more progressive tax system, has estimated that, when federal, state and local taxes are taken into account, the top 1 percent paid only slightly more than 20 percent of all American taxes in 2010 — about the same as the share of income they took home, an outcome that is not progressive at all.
With such low effective tax rates — and, importantly, the low tax rate of 20 percent on income from capital gains — it’s not a huge surprise that the share of income going to the top 1 percent has doubled since 1979, and that the share going to the top 0.1 percent has almost tripled, according to the economists Thomas Piketty and Emmanuel Saez. Recall that the wealthiest 1 percent of Americans own about 40 percent of the nation’s wealth, and the picture becomes even more disturbing.”
This article
http://thedepression.org.au/?p=14407
shows the imposition of the tax burden on labour and capital began in England in the 16th century to move the tax burden away from the elites of that time.
I would agree that income-based taxes are not as equitable as land/rent-based taxes.
Citizens for Tax Justice would not be an unbiased estimate and I note that they say “the top 1 percent paid only slightly more than 20 percent of all American taxes in 2010.” “All American taxes” would include taxes paid by corporations, not just individuals.
What is more important than who gets what share is the question: Is the welfare of the less fortunate (the bottom 20%) improving? If it is then the top 1 percent would have a strong argument that the system is working.
Equality (unattainable) is not the same as Equal Opportunity.
And egalitarian society is not one where everyone is and has the same as everyone else, but where individuals can aspire to improve their lives because the system allows them to do so with equal opportunities to do so without regard to irrelevant characteristics such as race, gender, impairment, religion, sexual preference, etc.
Education, skills training, fair pay, a robust and universally free health system, are all elements that bring equal opportunities to the population.
Jeff, I agree with what you say but caution against free health care services and/or free education as these can lead to abuse. But reasonably priced health care and education is important — and obviously these can be subsidised when there is real need, to ensure that everyone has access.