How bad is social inequality?

  How Bad is Social Inequality?

       Paul Johnson (director of  the 'Institute for Fiscal Studies') gave a talk at Clare College, Cambridge, on Thursday 2nd May 2024, titled:

 "Inequalities: what they are, why they matter, and how to address them". 

I was disappointed. I did not think he showed at all clearly why inequalities are bad. And he provided few ideas on how to sort them. 

He presented many inequalities; of income, education, wealth, health, inheritance, ethnicity, gender, geography. And he showed correlations; the unhealthy are poor, and the poor are unhealthy. But he was neither curious nor analytical about the causes of these inequalities, and their correlations. He seemed to assume a mechanism – the usual suspects; poor people are badly educated, are sick, die young and live in the north. It seemed to me insufficiently analytic; more like journalism than academia. And he scarcely touched on remedies.

It is not self-evident to me that inequality itself is a 'bad thing'. Some inequality could be called variety. Some people are tall, some short, some fast, others slow, some numerate others literate. 

Some inequality may be by choice. Some people may choose to live on a croft on Raasay, keep a cow and fish for lobsters. Some seek paid work, others may choose to remain unemployed in the north east of England, preferring that life to any alternative that they can imagine. After all, I do not want to make money on the Stock Market, nor by flying planes, nor by cutting people open. We should beware of making choices for other people. 

We are not all born equal. Inequality is inevitable. It can often seem 'unfair', and that unfairness can be painful to contemplate. Our idealism feels let down. Some people feel we have an inherent right to two legs, etc.; and that society has a duty to level up. I do not. But we do have an opportunity to correct the oversights of providence. Inequality can be mitigated, but not abolished. 

What, then, is positively bad for society about this God-given inequality, and how far should we go to lessen it? Does inequality simply indicate a wrong, or does it actually cause damage? Does it indicate cruelty; or actively breed indifference; or lead to bad government?

I believe that great disparity of wealth is bad for society in two different ways. The existence of very poor people dehumanises us. Their poverty hurts and rebukes us, unless we look away.  The very rich can also offend by causing envy in the less fortunate, as man is susceptible to envy. But envy alone is not enough reason to dispossess the rich. 

We are beginning to see how the very rich can cause positive harm. They can be hard to control. They can corrupt. Money confers power in so many ways. We are careful to give each adult an equal vote, but pay little attention to the fact that some voters can deploy a thousand or a million times the resource of the average voter. We are governed by the rich, as well as guided; we buy their newspapers, and watch their television channels. 

In particular, excessive wealth provides excessive means of making more wealth. Without explicit limits, the situation is mathematically explosive. Most people will use most of their resource most of the time. A billionaire will not; his wealth does not trickle down, significantly, to his hairdresser, or butler; it is salted away for his heirs. An inheritance tax (like the feudal 'fee') is essential. Unspent wealth should revert to the state. This has been said many times before. 

At a more mundane level, we should look for action points? Perhaps identify a metric that would indicate where state interference with the free market could be beneficially applied – for example we could monitor 'the increase in GCSE grades per GB£ spent, on the grounds that a pound spent in Ashington, Northumberland, would yield more marginal benefit than a pound spent in Haslemere, Surrey. Perhaps implement a focussed improvement of the transport infrastructure, e.g. in areas remote from London?

I was hoping Paul Johnson would have thought himself into such territory. He must be well informed on all aspects of taxation, and could, I am sure, make a significant contribution. I hope he can be encouraged to do so.

Sincerely, Ian West

(See also my post of 12 Mar 2012 –– "Taxing the Wealthy")

Steve Baker & Mark Carney

Steve Baker & Mark Carney

After Mark Carney’s 3rd Reith lecture of 2020, Steve Baker  asked:  “So there is such a thing as a ‘free lunch’?”  Carney was not given space to answer, for Anita Anand spoke over him, asked Steve Baker to repeat his point and then moved on to another questioner. 

I am sure Steve Baker knows this perfectly well. But, no; there is no such thing as a ‘free lunch’, nor a ‘magic money tree’. Writing new money into the British money supply will cause inflation in the long run, unless it is written out again at some stage (ideally before the inflation is noticeable). 

It is better that the ability to turn credit into pounds sterling lies with the Central Bank rather than the government. Government operates in the short term and is highly sensitive to the public clamour. It is too tempting for the executive to buy an election and create problems for the future. 

The Bank of England moves in (deliberately?) mysterious ways. But it is answerable to Parliament and is given the task of maintaining inflation at 2%. If it fails, its governor can be reprimanded or removed, or the entire Bank liquidated. 

A crisis like the COVID-19 pandemic is exactly the sort of crisis that justifies Quantitative Easing. If each citizen spent 1% of their total cash in buying a government bond, Steve Baker would not object. The effect is the same as 1% inflation, except that there might be some who neglected to buy the bond, but furtively pocketed the money. QE is fairer, as it hits all equally. Surely no-one objects to having 1% of their cash wealth taken (albeit without their consent) to support furlough, buy masks, build hospitals, etc. If any object, they should consider living elsewhere. 

The unfairness of QE is that it taxes (fairly) only cash; while land, houses, jewels, old-masters, etc are exempt. That is why we still need Death Duties and a Wealth tax.  I do not think this is what Steve Baker is clamouring for. But perhaps I am wrong.

One of the greatest threats to democracy in Britain is that few people understand money. The ones that do understand it own property, grow rich, and smile. 

Paying Taxes -- both a virtue and a necessity

 Why pay tax? 

    It is amazing how many people in Britain think taxes are wrong and should be avoided where possible. 

    Nevertheless, I was slightly surprised the other Sunday when the subject cropped up over a pre-prandial pint in the Greatworth Inn. My friend 'the accountant' said he thought that death duties were wrong; that they amounted to double taxation and little different from plain theft. 

    "Maybe", I said, "but still necessary", for I saw an opportunity to lay out my favourite recent aperçu.

 

    (Apparently it takes a certain sort of intelligence to realise that there are benefits that accrue from taxation: railways, roads, bridges, medicines, the disposal of waste, safety from violence, etc. Some rare citizens even wince at the sight of poverty in the streets. Many can be cajoled into paying taxes by ensuring that all people pay them in some sort of 'fair proportion'. But defining and ensuring fairness is far more easily said than done.  A few years back I crossed swords with a 5th Viscount over the existence of 'altruism' in human populations, which he pooh-poohed . 

    "What about in the paying of taxes?" I had said. 

    "But we do not pay taxes willingly" he objected. 

    "Of course we pay them willingly", I expostulated. "That is to say, a majority of MPs in the house of Commons voted through all the relevant legislation."  The Viscount turned then to other questions, and I was left with the distinct feeling I had routed him.)

    "Have you noticed," I said, returning to my accountant friend and my recent aperçu, "how money continuously flows from poor people to rich people, steadily and inevitably; taxes are needed to return money to the poor so the process can continue." 

    This is a novel idea, for even quite poor people think of tax as a net loss rather than a net gain, which to them it clearly is. 

    "But, but, but !!! " he protested; "The large incomes of the rich are the result of market forces; it is earned income; the money belongs to the rich by right; they are paid well because they are worth it."

    "All that may be true", I replied; "but it still has to be returned to the poor. It is the accumulation in the hands of the rich that has to be prevented. If the rich spent their income properly, that is to say fully, the inequality might be better tolerated. But they hoard their wealth. And so it must be prised out of their clenched fists." 

    Silence fell.

    "Who is for another beer?"  I offered, for I realised my companions were not up for radically rethinking taxation, and I could see another aperçu coming towards me: "What is a fair tax regime?  It must clearly be a tax regime that prevents the rich from getting richer, and the poor from getting poorer."

    Rather neat, do n't you think, for a Sunday morning?  Death duties are obviously the best way of collecting what must be collected; for only then is it clear how much is involved. (See also: https://occidentis.blogspot.com/2016/09/estate-tax-and-limits-to-wealth.html)

==================