There's a lot of words in this post. I haven't got the energy to edit it. Use it to cure your insomnia.

Overview

Income inequality has been systematised, and made legal.

The system's working 24/7. Very little human intervention is required. Very few bad guys have gone to goal. They can't be prosecuted under laws they create.

It's driven by powerful, hierarchical institutions controlled by elites.

They create and enforce laws, regulations and policies for their benefit alone.

Since government is all powerful, other hierarchical institutions in the hands of elites corrupt government for their benefit alone. They also evade prosecution.

Their power has never been greater and therefore income inequality has never been greater. Being human made, a lot could be done, in theory, to reverse the concentration of power and income at the top end.

Whether it is worth doing is a vexing question. The sad reality is that income is about to plummet (and inflation is about to sky rocket) as energy and commodity prices, and finally depletion of both, impact economies. Income inequality will get worse.

Our immediate future may be determined by who wins the battle for Russian and Middle Eastern oil. That's what it's all about. That's what it's always been about.

It's hard to envisage a rationing arrangement of remaining oil, or an answer to nuclear waste, coming out of current hostilities.

Of course, war between nuclear powers makes no sense.

If the US continues to back Russia and China up against the wall, my feeling is that, unlike us, they won't live under the US yoke.

Further out in time, if we get there, there'll be no affordable energy dense fuel, and the much lower numbers of people who survive the long descent will be subsistence farmers and hunter gatherers.

It's too late now to do anything because new arrangements will sweep away our institutions when the energy crunch hits and or war breaks out. Big, complex and inflexible will disappear.

It will be the end of capitalism and neo-liberalism. They are incompatible with the laws of nature (and sound moral values).

Humans have organised their world so that it favours powerful elites.

The downstream impact of that is income inequality.

The downstream impact of income inequality is social disfunction.

Humans are ill-equipped to understand and to take control.

The irony is that they have the collective power to cast aside the human component of income inequality.

The tragedy is that they've challenged the laws of nature, and will lose.

They could have controlled population growth. Nature will now take drastic action.

The earth has never supported more than a billion people on just the energy from the sun.

Do something to save yourself.

Hierarchy

Blair Fix has done a lot of work on hierarchies.

"Think about your daily life. You probably work in a hierarchy. You vote for the leaders of government hierarchies. If you're wealthy, you may even own a hierarchy. In short, hierarchy is everywhere in your life. Yet it's absent from mainstream economics."

"I'm working to fix this. I'm building a new approach to economics that puts hierarchy at the center."

"I've just starting this journey, but the results so far are exciting. I've shown that economic growth --- the runaway engine that's driving climate change --- is connected to the growth of hierarchy. And runaway inequality? That's related to hierarchy too. I've found that rank within a hierarchy affects income more than any other factor. Moreover, the growth of hierarchy may explain the origin of inequality itself. So when it comes to unsustainability and inequality, the fingerprints of hierarchy are everywhere."

In our institutions, your income depends to a large extent on your rank within.

When humans experience adverse changes in income, it's very often caused by government or business policies enacted by those at the top of their hierarchies. These policies are directed at those in the lower ranks. The weak and vulnerable.

Elites are driven by profit (and power), without regard for life, or our life supporting environment.

They enforce policies that deliberately create unemployment and underemployment.

They enforce policies that shred safety nets.

They enforce policies that degrade the environment and make it unsafe.

They enforce policies driven by a pernicious ideology called neo-liberalism.

They enforce policies driven by prejudice (racial, religious, sexist etc).

Dealing with Income inequality

Unwinding the causes is complex, but not impossible. If it's human made, it can, in theory, be unmade.

Humans are driven to form hierarchies, to deceive, and to ignore unpleasant reality.

Baked in inequality and widespread ignorance prevent humans from organising their world around no child families and smaller, simpler, less powerful institutions.

In any event, hierarchies can't exist without affordable, transportable, energy dense fuel. It follows that the end of affordable dense energy will sweep them aside.

Income inequality is driven by, among other things, privileged rentiers (banks, landlords, insurance companies). They transfer income from the bottom to the top as they sleep.

Neo-liberalism, which provides rentier privilege, is not about wealth creation. It's about theft. It's about wealth transfer from the bottom to the top. They've known for half a century, that there was nowhere near enough affordable dense energy to lift everyone up. They've known that depletion is inevitable. And now, it's a tsunami rising up but unseen.

Propaganda is winning the war, and will continue to do so. We're not reacting to impending catastrophe.

Here are three bandaids that can help. Mitchell's Job Guarantee, Keen's modern Debt Jubilee, and deficit spending.

There's no bandaid for running out of dense energy.

Job Guarantee

Modern Monetary Theory (MMT) understands that unemployment is a policy decision.

"Poverty is a largely political choice given sufficient real resources. It reflects a mal distribution of those resources and the currency-issuing government can always change that mal distribution..."

"Poverty is a lack of income and for most people of working age that is due to a lack of work."

"The introduction of a Job Guarantee which provides a socially-inclusive wage (above the poverty line) would all but wipe out poverty in advanced nations and significantly reduce it in poorer nations that struggle with overall inadequacy of resources." - Bill Mitchell

Modern Debt Jubilee

Heterodox economists (Keen, Hudson, Vague) understand that a modern Debt Jubilee is another policy option that would assist matters.

"A Modern Debt Jubilee uses the capacity of the government to create money to reduce private debt by effectively swapping credit-backed money for fiat-backed money" - Steve Keen

Deficit Spending

Affordable dense energy is the economy.

The money system reflects human claims on the material wealth, as well as the environmental and social damage produced by that energy.

Those at the bottom have little or no material wealth and share in the environmental damage while causing a disproportionate amount of it. They endure almost all of the social dysfunction.

Money is created out of thin air by government, when it spends, and by non-government banks, when they lend.

Conversely, money is destroyed by government, when it taxes, and by non-government banks, when loans are repaid or written off.

Money can sit in accounts or be on the move between accounts as entities transact with each other. This is the velocity of money and can vary between sectors and time periods. When pessimism sets in, money tends to be held. When optimism sets in, transactions tend to take off.

How new money finds it way into the millions of saving accounts is heavily influenced by politicians representing their donors and by the cartel of bankers representing their shareholders, who are also donors.

You can't vote wisely because it's out of your hands. If it makes you feel better but doesn't change anything, don't put an ignorant Pentecostal in charge.

Government is all powerful which is why various interests seek to control it (or do control it). In Australia, neoliberal means either of the two major parties.

Voters that neglect their democracy do so at their peril.

A government deficit (spending greater than tax revenue per time interval) produces an equivalent non-government surplus in aggregate (saving). It's accounting.

A government surplus (spending less than tax revenue per time interval) produces an equivalent non-government dis-saving in aggregate.

The non-government saving or dis-saving is divided among the non-government players.

A neoliberal government, and its regulated banks, influence the allocation of that saving or dis-saving. Neo-liberals will favour capital, and being a zero sum game, labour will pay.

The numbers below are made up to make the point about the zero sum game, and the expected winners and losers under a neoliberal government. In the example, the trade sector is ignored to simplify the argument.

Even when government creates a non-government dis-saving, it may take only one sector to dis-save (lose) for all the other sectors to save (win).

In the first period, the government spends more than it taxes (a deficit), but being neoliberal, the non-government benefit (saving) is shared among its donors and ideological mates. Households must pay the price (dis-save).

In the second period, the government spends less than it taxes (a surplus), but being neoliberal, the benefit is again shared among its donors and ideological mates. Again, households pay the price (dis-save). Of course, local and state governments might also be made to dis-save if they're not ideological mates.

Beneficiary	Non-Government Sector	$	$
	Trade Sector	0	0
labour	Households	-100	-200
capital	Businesses	+50	+50
labour or capital	State Governments	+50	+50
labour or capital	Local Governments	+50	+50
capital	Banks	+50	+50
		____	____
		saving +100	saving -100
		____	____
	Government	deficit +100	surplus -100
		____	____

On we go cutting our throats by voting in neo-liberals.

From an inequality perspective, government policies and bank lending practices have a big influence on who gets what.

Neoliberal government erroneously spends to benefit capital in the context of not exceeding its tax revenue for the relevant period.

This often leaves resources (machines and labour) sitting idle every period. They're real human beings enduring the material and psychological punishment of unemployment and underemployment.

If neo-liberals cuts taxes to benefit capital, it also cuts spending without damaging capital. See the earlier example.

Strong household spending is usually the main driver of business investment. When household spending is weak, tax cuts are in effect, capital welfare.

With government cutting taxes, and attempting to run a surplus, someone has to lose in a zero sum game. That's households, and local and state governments that aren't aligned.

Neoliberals understand deficits (take no notice of their anti-deficit propaganda). But they want the sheeple to think that they're income constrained like the sheeple. It's a lie.

In Australia, to maintain the lie, the government, which can create money out of thin air, borrows the deficit from the non-government sector.

Spending just the tax money is irresponsible. Spending to fully employ all available resources having regard for inflation is responsible. Your only voting option is the first one. You can vote for the second if you're eligible by voting for The New Liberals (TNL).

Neo-liberal spending invariably fits within their tax revenues. Taxes are easy to avoid if you have the money.

Their focus is on increasing asset values, protecting assets, and maintaining facilities they alone use (private schools, hospitals etc).

Any spending over and above that, is by definition, for the benefit of the sheeple, and is created out of thin air.

How much deficit neo-liberals permit depends on electoral consequences. If sheeple didn't vote, it would be tax cuts all round.

	$
tax revenue	100
spending on neoliberal interests	-40
spending on public hospitals, education etc	-80
	____
electorally acceptable deficit	-20
	____

A compassionate, economically literate government will focus on spending to employ all available resources. A neoliberal will want to limit spending to the amount of its tax revenues. This limits the spend on the sheeple.

The economically literate government will be mindful of inflation and not tax, except in relation to using tax to free up scarce resources for government use and or limit the power of the top end. Government creates money out of thin air. It doesn't need any tax in order to spend.

It means that the sheeple do not receive government benefits that would lift them up. That's a big opportunity cost that labour bears thanks to neoliberalism.

Social Dysfunction

The notable epidemiological study on the link between income inequality and social dysfunction is encapsulated in the book, The Spirit Level.

Neo-liberal governments cause income inequality which leads to social dysfunction. Their meagre mopping up efforts are wasted, if not counterproductive.

The clear implication is that, if you deal with income inequality at the source, downstream institutions like CentreLink et al won't be required. It's welfare for administrators in its current form. Like bonds are for business.

This is how Australia's going. The Anglo-Saxons are awash with dysfunction. The Nordic countries and the Japanese speak for themselves.

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This review of 'The Spirit Level' by David Beetham is recommended reading. It's available at www.opendemocracy.net

Book review: The Spirit Level - David Beetham

8 April 2010

The path-breaking book, 'The Spirit Level' showed how gross inequalities damage the whole of society. Yet a year later we are entering a general election in which the main parties will ignore their damaging effects.

For all the developed capitalist countries without exception, the international measure of inequality, the Gini coefficient, showed a continuous decline in inequality in incomes from 1945 to the late 1970s. From then on there developed a marked disparity between the continental European countries, where the trend continued, and the Anglo-Saxon economies, where it went into sharp reverse, continuing up to the present.

The explanation lies in the anti-union, de-regulatory and free market policies of Reagan and Thatcher, which were later copied by the respective leaders of Australia, Canada and New Zealand. Since New Labour in Britain has carried on with the same policies, it is hardly surprising that the trend to ever greater inequality has continued throughout its period in office, despite successful attempts at poverty reduction for families and children at the very bottom of the income scale. This is because free market capitalism, if left to itself, produces not so much a downward trickle as an upward flood of income and wealth, as the history of the past 30 years has only too clearly demonstrated.

Academic and political criticism of this trend towards greater inequality has until recently concentrated on its manifest injustice, underpinned by theories of justice elaborated within disciplines such as political philosophy. The importance of The Spirit Level, by Richard Wilkinson and Kate Pickett, lies in showing that increased levels of inequality lead to an intensification of a whole range of social ills which affect everyone in society. By comparing the evidence from 25 advanced countries and the 50 US states, which all differ markedly in their levels of inequality, the authors demonstrate through a series of tables that all the main social ills correlate closely with high inequality, devoting a chapter to each:

low levels of social trust mental illness (including drug and alcohol addiction) lower life expectancy and higher infant mortality obesity poor educational performance teenage births homicides imprisonment rates reduced social mobility

What is the causal link at work?

One obvious cause is that in highly unequal societies there are more people living in poverty and deprived conditions, and exposed to their effects. However, the key finding is that the ill effects extend throughout the social scale in unequal societies, directly as well as indirectly. "Income inequality exerts a comparable effect across all population subgroups…like a pollutant spread throughout society". This is because of the marked status distinctions that follow from economic inequality, and the effect these have on the quality of social relationships and people's sense of self-worth throughout the social scale. In a previous book, Wilkinson summarised the causal chain as follows:

Greater income inequality < increased social distance between groups, less sense of common identity < more dominance and subordination, hierarchical and authoritarian values < increased status competition, emphasis on self-interest and material success < others as rivals, poorer quality of social relations.

In terms of the effect on health, he showed from studies of Whitehall civil servants that those lower down the office hierarchy suffered more from cardio-vascular disease, and that this was due to the effect of stressful lack of control over work on the chemistry of the body (repeated in the present book). This condition of lack of control, status anxiety and fragmented social relations lies at the root of all the social ills documented in the latest book, and can be traced to the same cause of income inequality.

It is the experience of low status and low esteem that encourages violence, obesity, teenage pregnancy, drug use, and so on; and it is the fear of it that drives consumerism, longer working hours and other economic dysfunctionalities of unequal societies. In sum, "the role of this book is to point out that greater equality is the material foundation on which better social relations are built."

What are the policy implications?

The implications of the work are that three types of ameliorative policy are mistaken if not actually futile:

1. Treating each of the social ills separately involves dealing with the symptoms, not the underlying cause that connects them all, and involves high levels of public expenditure which would be better spent on reducing the inequalities in the first place.

2. Poverty alleviation strategies on their own, which aim to lift the lowest, do not touch the structural consequences of inequality, which remain in place. Huge salaries at the top are particularly dysfunctional, as their influence permeates throughout the social and occupational hierarchy.

3. The socio-psychological effects of inequality on individuals can only at best be ameliorated by cognitive behaviour therapy and such-like (as per Richard Layard's Happiness), since the condition is set to be continually reproduced if the underlying inequality is not addressed.

What should be done and by whom?

In the final chapters of the book the authors set out a mixed agenda of proposals, which all assume that the inequalities of the dysfunctional societies are not a natural phenomenon, but socially and politically constructed, and therefore open to change, as evidenced by the example of more equal societies (Japan and the Nordic countries). These countries are all "market democracies", so the changes are not insuperable, though they will take "many decades". The problem of climate change, they point out, requires movement in the same direction. Among their proposals are:

The establishment of a wide social and political movement for greater equality, working through all civil society organisations. The key for such a movement is "to map out ways in which the new society can begin to grow within and alongside the institutions it may gradually marginalise and replace….Rather than simply waiting for government to do it for us, we have to start making it in our lives and in the institutions of our society straight away". In support of such a movement, the evidence of the book turns what previously were purely private beliefs in equality "into publicly demonstrable facts";

Among the key institutions of this new society will be employee-owned and managed businesses, using participative methods of organisation which break with the hierarchical principles of the unequal society;

Of course there is an important role for government. It was the governments of the Thatcher and Reagan era that set the Anglo-Saxon countries on the road to greater inequality, and this can be reversed with wide-ranging policies, but they will take a long time to have effect;

The wealthy should not be allowed to stand in the way. "We should not allow ourselves to believe that the rich are scarce and precious members of a superior race of more intelligent beings on whom the rest of us are dependent. That is merely the illusion that wealth and power create".

What is likely to be done?

Wilkinson and Pickett's book provoked considerable discussion and concern when it was first published a year ago, but its message has now almost totally disappeared from public view. Nothing is more indicative of the diminished political discourse in the UK than the fact that, with a general election only weeks away, the issue of the gross inequalities of our society is virtually absent from the agenda of the main political parties.

The reasons are not far to seek. These parties all continue to subscribe to the neo-liberal economic ideology which has brought us economic collapse on top of the inequalities documented by the book; they wish nothing more than a return to "business as usual". The rich and powerful continue to exercise a stranglehold over the popular media and public policy alike. And there is something deep-seated in the Anglo-Saxon mentality which needs to have lesser breeds to demonise, whether they be unmarried or teenage parents, childhood offenders, the overweight, or whoever, and to subject them to punitive policies.

In the absence of a serious public debate about the message of this book, we shall continue to apply sticking plaster to the multiple social ills it documents, and at enormous cost to taxpayers¹ as well as to the quality of the society.

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1. This is incorrect economic thinking. Taxpayers don't fund anything. Government creates money out of thin air when it spends to correct social ills.↩