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The Inequality Crisis: The three options

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The Inequality Crisis

The everyday operations of our economies produce the goods and services that keep us alive and enable us to enjoy life. But that is not the only way that those operations effect our lives; they also effect societies and ecosystems. The Inequality Crisis, which threatens our societies, and the Climate Crisis, which threatens both our societies and our species, are also, no less than production, brought about directly by the everyday operations of our economies.

But for two hundred years the economics profession has in the main excluded from its study of economies two of their three categories of primary effects. And given the profession’s influence, this exclusion of societal and ecological effects has promoted the intellectual invisibility of these two categories, thereby helping to bring about the two crises.

Compared to the Climate Crisis, which although only recently acknowledged has been in the making for over a century and a half, the Inequality Crisis is young. The massive redistribution of income and wealth which brought it about began in the 1970s, but until 2014 that redistribution was, except in the RWER and other journals outside the neoclassical mainstream, almost never mentioned. Although there is still a long way to go, Thomas Piketty’s Capital in the Twenty-First Century changed that. Many kinds of intellectuals took notice, and literally within months of the book’s publication it became socially acceptable, even among economists, to talk about the growing inequality, about the by then already long-term upward redistribution of income and wealth.

Meanwhile the effects of that redistribution have become increasingly manifest, so much so that even in time of pandemic they make the daily news. In democracies it seems to be that the more extreme the upward redistribution becomes the more politically aggressive the ultrarich become. And when they capture political parties and then, as in the United States, rule and reshape their countries’ institutions, a moral vacuum emerges wherein victims of the redistribution look for vulnerable groups to scapegoat, and a populism of the pre-fascist variety takes hold.

But income and wealth distributions, unlike gravitational forces, result not from the natural order but from human decisions. And the general direction of those decisions now needs to become part of open public discussion. Regarding the distribution of income and wealth, human society now has three basic options:

  1. Continue with the upward redistribution,
  2. Maintain the current distribution,
  3. Reverse the redistribution of recent decades.

If you favour Option 1, you may not want to read The Inequality Crisis and you for sure will want to discourage others from reading it. Why? Because all its papers offer insights into how Options 2 and 3 could be realized, and all are ultimately committed to empiricism rather than to axiomatics. But this project is only part of a beginning. On its topic of economic inequality, many papers and books that are both truth-seeking and sincerely in the spirit of goodwill towards humanity are now urgently needed.

Edward Fullbrook

  1. Ikonoclast
    October 8, 2020 at 2:47 am

    To give Joseph Stiglitz his due, he has been mentioning inequality quite a bit and for quite a long time. But he has been one of the few. John Quiggin, an Australian economist, has also been mentioning inequality and the problems with market fundamentalism for much of his professorial career.

    But yes, every book highlighting inequality is a book to the good. The inequality reality has been too much swept under the carpet and for too long.

  2. October 11, 2020 at 7:11 am

    I have written a book on this but I can’t get it published ‘because of its polemic’ I am told:
    My manuscript in PDF is available. It has been serialised here over the last 3 years – I write a Letter to my American readers each week:
    https://www.theburningplatform.com/author/austrian-peter/

  3. Ken Zimmerman
    November 5, 2020 at 5:23 pm

    Economic inequality (better stated as resource inequality) is not new in human societies. It goes back to the first 1,000 years after humans created settled agricultural communities. Likely between 7,000 and 10,000 BCE (before current era). This is sometimes referred to as recorded human history. It is thought that during most of pre-recorded history (which accounts for more than 90% of total human history), people lived in groups in which equality was quasi absolute (see Ken Binmore, “The Origins of Fair Play,” Keynes Lecture 2006, The Papers on Economics and Evolution, No. 0614, (Jena: Max Planck Institute, 2006).

    Without exception inequality is social and cultural. It is based on comparison among individuals, groups, societies, etc. It is a relational phenomenon. Inequality can thus exist only when there is a community. Up to and including entire societies. A Robinson Crusoe cannot have a concept of equality, but Robinson Crusoe and his Man Friday do. Communities are not a mechanical accumulation of individuals but a group of people who share certain characteristics such as common government, language, religion, or historical memories. That is, a common culture. Thus, inequality as a lived way of life requires a common cultural framework to be shared. Whites in the pre-Civil War American South ‘understood’ black slaves to be inferior compared to themselves. The slaves generally did not share this understanding. Although intense enculturation (socialization) might bring some slaves into the white common culture and thus into the belief in their inferiority. Historians have studied these efforts. But do not agree on how widespread or successful they were. Which brings us to the final point – performativity. Inequality is not natural or inevitable. It must first be performed to show how and why it functions. Then, if necessary enforced. Cultural norms usually provide this enforcement for members of the community identified as superior. In addition to object lessons. Particularly for children. Cultural norms also hold the members of the community identified as inferior. But in general, are almost always supplemented by pressure or stress (including physical violence). In some situations (e.g., slavery, colonialism, racial-ethnic segregation) the violence may become extreme. Even counterproductive.

    Historically, inequality falls into one or more of three categories. First, inequality among individuals within a single community—typically, a nation. This is the type of inequality that most of us will easily recognize because it is the type of inequality that we are likely to think of first when we hear the word inequality. Second, inequality in income among countries or nations. Also, this is inequality of which we are intuitively aware because it is the sort of thing we notice when we travel, or when we watch the international news. In some countries most people appear poor to us, while in others most people seem affluent. These ‘between-country’ inequalities find their expression also in migration when workers from poor countries move to the rich world to earn more and enjoy a higher standard of living. Third, a more directly relevant and recent vintage of inequality is global inequality, or inequality among all citizens of the world. This inequality is the sum of the previous two inequalities: that of individuals within nations and that among nations. Global inequality is as one might suspect a result of globalization which has socialized most humans on Earth to contrast and compare their own fortunes with the fortunes of individual people around the globe. A neoliberal’s ‘wet’ dream. With no relief in sight from continued globalization pressures it is probably a form of inequality whose importance will, as the process of globalization unfolds, increase the most.

    There are dozens of questions about how to measure inequality, whether and how to deal with its consequences, whether it is wise to seek the abolition of all inequality, and if and how the suffering from inequality plays into the history and futures of societies, nations, and the world. No right answers but lots of work to do. It is also important to note that inequality among humans extends well beyond just physical resources (including money). Social scientists consider inequality in class (economic), prestige, status, and servitude. Formally, for example sociologists distinguish four main types of social stratification – slavery, estate, caste and social class, and status. Inequality is more complex than is set out in economic theories and research.

  4. Alan Harvey
    November 23, 2020 at 9:13 am

    The correlation between inequality and social, medical, psychological outcomes was demonstrated conclusively by Wilkinson and Pickett in THE SPIRIT LEVEL. Economists are always looking for the best indicator of an economy’s health. By dozens of measures, they have shown that indicator is income equality. They go further, and propose causation, and quite convincingly. But at a minimum,, it is correlated strongly to societal well-being.

    You talk about societal effects. The one indicator that shows you how a society is doing in terms of obesity, suicide, mental health, crime, and on and on is INCOME EQUALITY. I wish it could be internalized in our discussion the way GDP and employment are. The improvement in social and personal health occurs across classes, with the richer and poorer all doing better.

    They have online The Equality Trust with updated data. I have not read the material following, but it’s something I wanted to make a note of here.

  5. November 23, 2020 at 10:23 am

    Yes! When, post-war in Britain, rationing enforced it, “the improvement in social and personal health occurred across classes, with the richer and poorer all doing better”. The Spirit Level indicating Equilibrium!

  6. Ken Zimmerman
    November 23, 2020 at 3:35 pm

    As humans have narrowed their focus and become more ‘specialized’ in order to perform what is termed ‘scientific’ or ‘professional’ analysis general human knowledge and understanding has steadily declined. And it is the latter that has provided the communities, language, and tools that foster Sapiens’ survival. Specialization culture is a great burden on that effort. Eventually to the point where our species may go extinct because fewer and fewer of us can see what is most obviously happening around us (e.g., climate change, sociopathic relations (loss of empathy, reliance on fear and bullying, weaponization of most human interactions), inequality)) because our own cultures blind us to the threats our species faces. Unfortunately those who work in and call themselves economists are one of the leaders in this blindness (with a few semi-lucid exceptions). Inequality is a symptom of a cultural sickness that goes to heart of humans’ current ways of life. Although economists helped to create it, they cannot alone fix it.

    • November 24, 2020 at 11:59 am

      Nice to be able to agree with you, Ken.

  7. Meta Capitalism
    December 31, 2020 at 2:48 am

    We make light of virtues in life; we praise them in death.
    – Giacomo Leopardi, Nelle nozze della Sorella Paolina, Canti IV, 1824

    The world suffers for lack of thought.
    – Pope Paul VI, Encyclical on the Development of Peoples, 26 March 1967

    We have worked in the area of the civil economy for many years. We published a large work on this theme in 2007, which was a time of growth and enthusiasm for the new financial economy that promised widespread and inclusive well-being. Actually, even then we were pointing out the serious limits of a vision of the market and a conception of the company that was based on the individual rather than on the person, on compulsively seeking wealth rather than public happiness, and forgetting and destroying such fundamental economic goods as relational goods, common goods, and gratuitous goods. The crisis that exploded in 2007–8 only reinforced our diagnosis of the malady of a particular capitalist economic system that is wholly centred on rent seeking. The crisis confirmed yet again that the classic tradition of the civil economy still has a future for Europe and for everyone.

    As well as witnessing the grave crisis of debt-based financial capitalism (private debt in the United States and public debt in Europe) the past ten years have been an important time for the civil economy. An unintended consequence of the crisis was to create cultural conditions suitable for understanding the economic, social and ethical relevance of a different, sustainable vision of the economy and finance. The “civil economy” is a tradition of thought that, in order to save the market economy, recalls it to its ancient, original vocation as an ally of the common good, representing a space for liberty, sociality and the expression of our capabilities and “vocations” as persons, particularly the vocation of work. (Bruni, Professor Luigino; Zamagni, Professor Stefano. Civil Economy. Agenda Publishing. Kindle Edition.)

    We will not exit this serious crisis, which goes much deeper than just the economic dimension, by eliminating finance and markets (assuming that someone were even able to do so), but only with civil and civilizing finance and markets. Indeed, we should recall one of the lessons of the civil economy tradition: actual markets, different from those described in most textbooks, are never ethically neutral; they are either civil or uncivil (tertium non datur, i.e. “no middle ground”). If finance and markets do not create value and values, if they do not create work, if they do not respect and care for the environment, they are simply uncivil; they destroy the economy and civilizations, as we continue to see in this time of crisis. The market economy will survive only if it is able to move beyond this form of individualistic, financial capitalism, towards a civil and civilizing economy. (Bruni, Professor Luigino; Zamagni, Professor Stefano. Civil Economy . Agenda Publishing. Kindle Edition.)

    .
    Many thanks to A.J. Sutter enlightening me to the work of Bruni & Stefano.

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