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Opinion: Capitalism and extreme inequality

Opinion: Capitalism and extreme inequality

By Neville Bennett

I am getting increasingly perturbed by growing inequality in the world at large, and in New Zealand.

I will provide evidence later of growing inequality and also explain why I think it is very dangerous and de-stabilizing.

I also think we have been conned into thinking that it is OK for the rich to benefit because it is assumed that the benefits will be shared by society.

This is a version of the “trickle down” theory which is embedded in our policy making elite. I have always been sceptical of it and endorse the late J.K. Galbraith’s explanation of it. We are the sparrows who feed on the oats in horse dung. The horses (the rich) get good oats, the people get scraps.

The people are not getting much after the Great Financial Crisis, incomes have fallen and the taxpayers in the USA, UK and places like Greece and Ireland will be hamstrung for a generation because their states have assumed the debt caused by idiocy in the private sector.

One example is Ireland. On 30 September the Irish government announced that yet another bailout was necessary for the Anglo-Irish Bank. The bill would be 34 billion euro, which is 32% of Irish GDP and more than 100% of tax revenue. Ireland must pay or be regarded as a “defaulter’. Ireland has also slashed spending, cut public sector salaries, welfare and education budgets. The economy is in recession and growth will be low for a generation as debt servicing will be the first charge on revenue.

Ireland is not unique in this situation.

Not only are people on low, often falling, incomes but they are supposed to admire the rich and give them further concessions. In the US at present the Republican Party has given priority to demanding the Bush tax concession to the super-rich be extended. They would prefer the rich to get more disposable income rather than Obama’s idea of taxing incomes below $200,000 less.

The Republican claim restoring the tax cuts for the wealthy would stimulate economic growth. This is an example of the con to which I refer. Newsweek says “nonpartisan economic analyses show that while any lower tax increase will lower overall demand … the Bush tax cuts for the wealthy create far less economic growth than other potential tax cuts.”

The Tadpole Society

I was lucky as a student doing my degrees at the London School of Economic to hear lectures by R.H.Tawney, mostly famous for “Religion and the Rise of Capitalism”. 

Tawney was a passionate liberal, and as liberals are keener than others on equality of opportunity, he wrote a brilliant book on “Equality” in 1931.

I recall his “Tadpole Society” which he said we had deteriorated into. He says we are all tadpoles, almost all of us destined to die soon, but one of the multitude will break through to frog status. We applaud the frog, and are happy to accept a society where so few can succeed.

The poor man would squirm if he were alive to see the Republicans maintain gridlock at Congress because of taxes on the rich at a time when over 40 million need food stamps for adequate nutrition. Winston Churchill made a brilliant speech in 1906, much quoted by my grandfather, “The cause of the Liberal Party is the cause of the left-out millions” .(source: Alan Bullock, The Liberal Tradition, 1956, p211.)

The Frogs

The world’s wealthy, often called High Net Worth’s (HNW), grew by 17% last year and their combined personal wealth grew by 18.9% to US$29 trillion.

A HNW is defined as owning US$1 million plus of financial assets; an Ultra-HNW has US$30 million plus of financial assets. The rich are growing fastest in the Asia-Pacific region.

What does interest me is their estimated financial assets of US$39 trillion.

What is $39 trillion? I looked for comparisons.

One comparison is that global stock markets combined capitalisation of US$47 trillion in 2009 is very close to the net financial assets of the HNWs.

Annual world GDP was a bit more than US$60 trillion in 2008.

Another comparison: the Fed reports that US household wealth fell in Q2, 2010 by 2.8% to $53.5 trillion. So the net worth of all US households and non-profit groups is comparable to global HNWs financial assets of $39 trillion. The survey has no valuation for the residences of the HNWs, nor their aircraft, cars and boats, or their collectables of art, stamps, wine etc or their watches and jewellery. I presume there could be some extensive land assets near their residence. My conclusion is that the world’s 10 million rich control wealth equivalent to about 80% of the total values of the US’s wealth, and close to the total capitalisation of the world’s stock markets.

The Ultra-HNW are only 0.9 of the HNWs but they own 35.5% of HNW wealth, and their wealth rebounded a massive 21.5% in the year.

Some of these UHNW are pretty scary. I have been reading Stephen Armstrong “The Super-rich shall inherit the Earth. The new Global oligarch and how they are taking over our world” who observe about the Russians who control so much of Russia’s resources . They are well-placed to act with a supportive state, with western banks eager to help: ”they could be all over our key natural resources in the next ten years..” (p..70)

As it happens the Brazilian, Chinese or Indian ultra might beat them (p.70) to New Zealand and Australia.

What is wrong with inequality?

Inequality is natural - up to a point. I think it is reasonable that people with greater skill, harder work or greater entrepreneurship should earn more money than the average. In some societies tax policy redistributes some income. I supported this even when I was in the top income bracket for 40 working years.

But there has been a great change. Income tax rates have a low redistribution element now, and we have adopted GST as a major revenue raiser. GST is not a progressive tax, but is deeply regressive, hurting low income people more than the rich.

I will be talking about New Zealand inequality here (if invited) and show that one consequence is that a high proportion of our children now live in poverty: they did not in the 1970’s. ( I would welcome suggestions of data sources on NZ inequality).

Have you wondered why NZ has high crime rates and levels of prisoners? Why obesity is high? Countries with high inequality (like the USA, UK, NZ and Portugal ) undoubtedly do not thrive as well as more equal societies like Japan, Sweden, Denmark etc.

This is proved to my satisfaction by brilliant extensive research by Richard Wilkinson and Kate Pickett  “The Spirit level: Why Equality is Better for Everyone”. The authors are expert in epidemiology and handle huge data bases with enviable professionalism.

They show that inequality leads to;
• Shorter life expectancy
• Teenage births
• Obesity
• Mental illness
• Murder
• Imprisonment rates
• Mistrust
• Lower social mobility
• Poorer education performance
• Higher infant mobility
• Longer work hours [my addition]

There is a wealth of graphs to convince anyone on these points. The text is terrific. A quote:

We should not allow ourselves to be cowed by the idea that higher taxes on the rich will lead to their mass emigration and economic catastrophe. We know that more egalitarian societies live well, with higher living standards and much better social environments.

We also know that economic growth is not the yardstick by which everything else must be judged.

Indeed we know it no longer contributes to the real quality in our lives and that consumerism is a danger to the planet.

Nor should we 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 an illusion that wealth and power create.

--------------------------------

* Neville Bennett was a long-time Senior Lecturer in History at the University of Canterbury, where he taught since 1971. His focus is economic history and markets. He is also a columnist for the NBR.
neville@bennetteconomics.com
www.bennetteconomics.com
 

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103 Comments

And of course many of the emerging HNW are getting there on the back of organised crime associated with the drugs trade - employing slave labour in the cropping fields and recruiting innocent young people (often overseas students) as middlemen.  Witness the murderous society the Mexican people live in today. Legalise drug use and this income stream (as well as the crimes against humanity) vanishes overnight.   Spend the money now spent on enforcement instead on rehabilitation, education and prevention.  Put the end users in rehab, not prison.

Good to read articles of you Neville.

Most Western economies are struggling without clear concepts for improvements. Signs that the new economic powers are moving into a similar path is more then possible.

For a start economies don’t succeed on calculators only, like so many bloggers here, economists, bankers, politicians, and policy- makers believe and talk all day long. Economies need a new source of inspiration. Not people such as Stieglitz, Friedman, Roubini etc.  a classical: http://en.wikipedia.org/wiki/Cambridge_capital_controversy

but philosophers, who are able to see all elements of life correlating them into  today’s ever, fast changing and complex world. Without a comprehensive new concept to life we cannot revive our economy.

Thanks for an interesting read Neville.

  I too struggle with inequality in our society. But the more I look at  state handouts, it's hard not to feel that lower income groups are being 'bought out' with welfare. Im amazed at the size of the work and income branch in our small rural town, Im shocked at the lack of work ethic and ambition in  many of our young.  Working for the State has replaced many real jobs in the economy and the lack of discipline is almost worst in our own Government.

The rich appear to do very nicely now the free market has been rolled back, most of our HNW individuals did best out of NZ rail,Telecom,airport sales and the wine box fiasco.

  Close links to Govt is essential for the UHNW individuals.

http://www.telegraph.co.uk/news/worldnews/asia/india/8063385/Indias-rich...

Our challenge is to increase demand without increasing State spending. To do this will require a cutback in taxes and the resulting transfer of wealth to the State.

I appears to me that the credit bubble has hugely benefited some individuals in our society,the easy money from credit expansion ends up at the top.

Quote

This process of continuous creeping taxation, together with more overt taxation, irreversible growth in government regulation and the encouragement of speculation by everyone induced by government sponsored inflation, has destroyed most of the real productive capacity in western nations and made mendicants of a huge proportion of the population.

The interesting thing is we have two clear examples of the "Gilded ages", the 1920s before the Great Depression and today...both seem to have led to huge problems......I think the number was 23%? of wealth is concentrated in the top <1%....in both these examples...so there has to be a change....indeed there will be....

We are looking for a decade or 3 of hurt IMHO...for the last one WW2 eventuated and after it ppl were determined there would be no return to the gilded age where many lived on scraps Churchill was kicked out...........Today I think this will be seen again....there will be a swing to the left and the "super rich" will get super taxed.....and since this is a world wide problem they have no where to run to....

By and large Im pretty sure that <1% are more detrimental to the other 99% than good anyway (images of a vampire squid sucking out the life blood come to mind) so making them leave NZ doesnt strike me as necessarily a bad outcome..........

regards

David moss of harvard is the man. he points out in 1929 and 2008 that tpo ten% got 49% of US income. top 1% in both years got 23%

forgot to put this in

We have dislocated people from society, not only those at the bottom, but those from the top, they live in there own world, with out a thought for others, i.e. they wish to accumulate and consume more rather create an inclusive society, those societies that are more equal have a social thread running through their culture. We are now startin to se those that don't. Taxation is not the answer, its culture.

Neville;

I really liked your column in the NBR, on India.

Did you know that Ratan Tata is doing the world's cheapest homes (as well as the world's cheapest cars)?

http://mumbai.thecityfix.com/tata-gives-india-the-worlds-cheapest-home-but-what-does-that-mean-for-cities/

If you're worried about inequality and lack of opportunity for the poorest people in the world, ask yourself what is the main reason why homes this cheap cannot be done in most places in the world. Including NZ. Government regulations.

India has nightmare regulations too, of course, it is all credit to Ratan Tata that he has somehow negotiated through all these. He is an outstanding example of "capitalism" as Adam Smith meant it - actually supplying what people need at a fair price; as opposed to the status quo (which somehow is still regarded as "capitalism") where oligopolies result from government regulations that actually stamp out genuine competition. This is especially the case with urban land supply.

Steven. Rich is so subjective, as an example;

Ive a friend who had no money but scrapped and borrowed to buy a 36  foot sailboat, it was old with a petrol engine(7k US$) he was in his late 20's  when he left the USA to sail the world. He had a hand held GPS, second hand sails, and a ham radio. He drifted around the Pacific teaching himself to sail. I met him in the South Pacific and he had been 10 years living on nothing, strong and healthy with no worries. 

 One day John was sailing into Port VIlla and this huge super Yacht was in town. He sailed past looking with envy at the 60 meter ketch. He sailed past the owner who was on board with a friend. they were men in their late 50's , then he noticed that they were looking at him with wish full eyes, first his gorgeous 25 yr old topless girlfriend catching some sun on the foredeck and then him and his carefree life. Watch what you wish for in life, money is often the easy bit and not whats important.

He is now in his late  40's on the sea with his children.

I've lost contact but Im sure he is safe and well, diving for dinner with his spear gun, writing for fun,playing his guitar in the evenings while drinking home brewed beer and exploring something new, just as I left him after a few days sailing together. His student loan filed somewhere in New Hampshire gathering dust his degree on his parents wall and more friends than he can keep up with.

Neville;

Firstly, how much government spending in first world countries, represents "benefit" to the poorest members of society, as well as the outright transfers of money? Compared to the population of third world countries, even the poorest members of our society benefit from literally six figures per annum of government spending per head. Of course a lot of this spending is low quality. Roger Douglas pointed out years ago that a solo mum with 3 kids could actually live quite well if we just gave her all the money we were spending on her, and let her pay her own way.

The question to ask is, how much MORE government spending "should" be targeted at the poorest members of society, and isn't it time to look at actually getting value for money for them? If someone in the third world was just "given the money" that is spent on our poorest people, they would be straight away among the world's upper classes.

Think about whether the following also cause inequality, and of lowered social mobility, and why are they "off the table" as far as analysis and discussion of this issue is concerned:

Provision of services, etc, with public money, that primarily benefit the wealthy, and the neglect of infrastructure that WAS once a greater benefit, proportionally, to lower income earners. The neglect of roads, and time wasted in congestion, has a disparate impact on the poor, who tend to depend more on motor vehicle use than middle class people who can choose where they live and can organise their life around public transport.

The subsidy of cultural centres and art galleries benefits the wealthy at the expense of the poor. New Orleans was a classic illustration of the consequences of concentration on trendy cultural vibrancy and the like, by the local administration, at the expense of vital infrastructure that was fought tooth and nail by chardonnay greenies and NIMBY-ists.

The “conservation” of land, and restrictive zoning, has a disparate impact on the poor, on the young and those who do not own properties, in favour of the more well-off who maintain their nice views and surroundings, while property values escalate out of reach of all who are not already property owners. An excellent article in this respect, is “Green Disparate Impact”, by Thomas Sowell. (The “poor” population of California is actually being driven out of state by escalating property values).

Why shouldn't the very poorest people in NZ or Australia or Europe have the option of homes as cheap as Tata's? (In parts of the USA, options this cheap are possible - but not in highly regulated States like California).

Also, in "The Housing Bubble and the Boomer Generation", Robert Bruegmann argues that this phenomenon has resulted in "the greatest intergenerational wealth transfer in history", in favour of older, existing home owners, at the expense of young, first home buyers. The "boomer generation" benefitted from pro-development policies that enabled them to buy low-price first homes on the urban fringes, while at the same time the price of all houses was kept low. But now the boomer generation has gone along with land conservation policies that result in the prices of all homes being driven up, which benefits them but prices first home buyers out of the market. And when these property price "bubbles" burst, it is the people who bought more recently, mortgaged to the limit, who suffer the most from bankruptcies.

I will post this at this point, because it is getting long, and continue further below.

CONTINUED: (Think about whether the following also cause inequality, and of lowered social mobility, and why are they "off the table" as far as analysis and discussion of this issue is concerned:)

Increases in regulatory expense and the costs of obtaining licenses for commercial activity and the like, tend to inequality. A major food canning business began a few decades ago in its founder's garage. These "rags to riches" stories, are no longer possible, except perhaps in the entertainment industry. This phenomenon is well covered in the book “The Mystery of Capital” by Hernando DeSoto. Interestingly, well-established larger businesses are often supporters of this phenomenon, as it keeps competition to a minimum, hence the little-publicised support of many wealthy people for regulatory, socialist politics.

The trend towards greater levels of immigration, and relaxed criteria for language, qualifications, and wealth of immigrants. Immigrants in the past tended to be fewer in number, of high qualification, and socially mobile. Our political culture now demands less discrimination, and what is more, does not require the immigrant to assimilate. Large numbers of modern day immigrants merely swell the ranks of the immobile underclass.

The subsidy of tertiary education with public money. Tertiary education itself, tends to increase inequality, due to the higher incomes commanded by graduates. To use taxes, which remain unnecessarily high on low income earners, to subsidise this, only worsens the situation. An outright free market situation with all students paying fees, and a broader use of direct student-based “scholarships”, would actually produce less inequality than the system we have now, and would produce much better results in terms of relevant qualifications. I suggest that many of the poorer folk who do make it to Uni under the current system, could be tending to make poorer choices of qualification, which would be eliminated by better guidance under a scholarship-based system especially scholarships funded by private enterprise which best knows of its needs for people with certain qualifications.

The fully socialised public schooling system, actually increases inequality because the numbers of people who can afford to pay taxes AND pay private school fees is obviously going to be low; in contrast to any system where parental choice is at least partly subsidised with tax breaks or "vouchers". This is why 3 times as many Australian schoolchildren, proportionally, go to private schools, than in NZ.

Breakdown in traditional marriage. The obvious thing is the disadvantage to children brought up without a father, or with a string of perverse male role models in their lives. But also, marriage across socio-economic boundaries, and subsequent “inheritance”, were powerful reducers of inequality. Declining religious observance and churchgoing is also a factor in a lower rate of marriage occurring across socio-economic boundaries.

The obvious contrast between single parent families and double income families. In previous eras, there were less of both these things. Obviously, if we progress from a societal model where most families have 2 parents, with one working; to another model where there are a large proportion of double income families and a large proportion of solo mothers, either working or not, we will experience an increase in inequality.

The trend for wealthier people to have "planned families", and the poorer not.

Lastly, there is simply more selfish attitudes, the "me" generation, with more childless "singles", who are relatively well off, than at any other time in history.

Neville, I actually think it is NO wonder, with all these factors at work, that there is inequality and low social mobility in a society.

California is probably the outstanding illustration of all these effects of misguided policy of "Liberal Left" government on poorer people, which the same government and politicians claim to care about more deeply than "free market" politicians. A recent article made this comment:

 "....As recently as the 1980s, Californians generally got richer faster than other Americans did. Now, median household income growth trails the national average while the already large divide between the social classes—often bemoaned by the state’s political left—grows faster than in the rest of the country....."

http://www.american.com/archive/2008/november-december-magazine/sundown-for-california

As per last para....

The US's President was?

regards

 "We can see runaway feedback loops in the economy and society, not just in Nature. One of the key runaway feedbacks in the U.S. is the concentration of wealth and political power.

As wealth has become concentrated in the top 1/10th of 1%, then the political power that can be purchased with that wealth also rises, which then enables the wealthy to increase their wealth via "Federal entrepreneurship" and other means.

The political process--once potentially a force resisting or moderating wealth--has been completely captured by an ever-expanding army of lobbyists, the fast-spinning revolving door between the Central State and corporations and unprecedented levels of corporate/Elites campaign contributions.

The judiciary, theoretically a force which could have resisted this concentration of wealth and political power, has also been co-opted by a marriage of ideology and wealth/power. Thus the courts have gutted every attempt at limiting corporate/insider influence over the processes of governance; the courts have enabled corporations to have the "right to free (paid) speech" unburdened by the obligations that go with such rights.

The wealth/power feedback has reached runaway levels. "Reforms" are gutted in backroom deals, votes to benefit the banking/mortgage/foreclosure industry are done on voice calls to evade public scrutiny, and a thousand other games and tricks are played daily to subvert the common good for the benefit of the few and their armies of technocrat toadies.

The other positive feedback loop approaching runaway levels is the Entitlement/Welfare State, both the Corporate Welfare and the bread-and-circuses welfare State. Both serve the Power Elites, of course, the first by diverting the national income to the Elites and the second by rendering the disenfranchised passively complicit in the status quo."

I'm busy and want to comment but, in the mean time here's part of a recent article from C H Smith. Superb as always.

http://www.oftwominds.com/blogoct10/runaway-feedback10-10.html

In a similar vein: 

the disconnect between the nation's highly concentrated wealth and Americans' perception of wealth distribution reveals the power of propaganda.

The status quo's organs of influence (the mainstream media, status quo education, Central State, etc.) have very effectively "sold" the American public on their "membership" in an "ownership" society comprised of a Great Middle Class.

All of that is very clearly propaganda. The reality is the middle class owns almost none of the financial wealth of the nation, and thus its resilience in the face of economic adversity is as wafer-thin as its real financial wealth.

http://www.oftwominds.com/blogoct10/middle-class10-10.html  

and:

http://www.oftwominds.com/blogoct10/fraud-anger10-10.html

Good article Neville. In New Zealand's context I've come to think of it as 'economic apartheid'. The question is though, how can it be brought to a close?

http://www.interest.co.nz/opinion/mondays-top-10-nz-mint-more-problems-compulsion-martyn-reesby-and-money-managers-shoot-property-spru#comment-570298

As you can see, South Africa managed it, why can't we?

What was apartheid really about for SA?

What is economic apartheid really about for NZ?

Some symptoms:

http://www.interest.co.nz/opinion/resource-management-act-reform-discussion-papers-bureaucratic-mush-its-worst#comment-582664

Good luck with an NZ focused article on this topic. I (many here as well methinks) look forward to reading it.

Cheers, Les.

www.mea.org.nz

Talked to South Africans on how well SA has done?

The ones I talk to seem to think the place is a mess........

regards

Steven,

I THIIIIINK Les was being sarcastic about SA's "solutions". I think I agree with him, he seems to have "got it" about the role of land regulation in NZ.

One of the historical possibilities that always sickens me, is that inequality leads to violent revolutionaries overthrowing "capitalism" with disastrous results; whereas if there had EVER been a libertarian revolution that had eliminated the "big government" enablers of exploitation and oligopolies instead, the historical proof would have been stark. It is noticeable though, that libertarians are never mass murderers in support of their cause, although the rhetoricians of the Left routinely accuse them of complicity in "capitalist" brutality, poverty, starvation etc.

Maybe the US revolutionaries WERE the historical example I am looking for, of a successful libertarian revolution. There has certainly never been another Constitution as libertarian as theirs - although it has been tragically flouted by judicial activism and sheer ignorance in our time.

If it was indeed Libertarian, and actually I can I think agree to an extent, it generally it was...it has not stood the test of time....it is now clearly usurped...and has been since WW2 at the latest, quite possibly earlier....I cant on the face of it agree on Judicial activism, (please explain what you mean?)....for me Eisenhower's speech regarding the risk from militray industrial complex  has come to pass....though he missed the risk from the financial industry...

Sheer ignorance, depends on the context, for me I think voters have blindly followed say GOP, the result is what we see....

regards

Steven,

I agree that the USA's founding fathers vision has been usurped. Judicial activism is largely responsible, even for the ills you might think are not. Judges actually upholding the constitution could have forestalled pretty much everything, even the military-industrial complex. Certainly the financial industry. It is completely against the constitution, for the government to subsidise, bail out, or take over ownership of anything, for a start.

Ron Paul might be outside the scope of your reading - Gary North is another one I can recommend.

Most of the things for which "capitalism" is routinely blamed by lefties who only ever read Chomsky-ite analysis and never read about REAL capitalism - are the fault of government interference in free markets.

The military-industrial complex thing is over-rated. The biggest problem for humanity, is ideology causing wars. Was Hitler or the Bolsheviks, stooges of military industrial producers? Is Ahmadinejad? In the event, it is as well for the bastion of freedom in the world, the USA, to be well-armed. On balance, I do not see that the US's military-industrial complex is remotely comparable to these ideological threats to world peace, and rather serves as a fortuitous counter to irrational peacenik and outright quisling tendencies in a certain sector of politics in the decadent West. Ignorant people need to be careful what they wish for, because the most vocal peaceniks are the ones who always wanted the enemies of the West, christendom, and democracy, to WIN, and us to lose.

The Ron Paul argument against the miltary-industrial complex is far more respectable than the one that emanates from cheerleader for worldwide Communist victory.

And your solutions are ?

Einstein said given a problem, he would spend 55 minutes defining it and five minutes solving it. He believed the best problem solvers were those who could define problems in new ways. Polaroid inventor Edwin Land said if a problem can be defined, it can be solved.

The problem is: we are taxing the wrong things - labour and profit.  What does a person without assets have aside from his/her labour?

Read Marx and the current situation becomes very simple to understand.

The problem with Marx is and was it is not a system that is self-supporting...whenever we look at any real world examples they turn out to have quickly morfed into something  truely oppressive. But this is I think the same with any [fairly] extremist system....there has to be checks, balances and diverse opportunties.......

Otherwise yes I have enjoyed reading his work...its actually quite elegant......

regards

Henry George had a point too. Even the philosopher Rudolf Steiner wrote some very insightful things about land values and the importance of preventing the diversion of useful investment in capital, into land values.

So much income and profitability ends up captured in land values, that land taxes are possibly the most useful fair way to capture revenue from the whole process of wealth creation, without impeding the process in the first place as taxes on income and profits do.

Then there is the potential for speculative gains in land. I have no faith at all in a CGT as a tool against speculative gains in the first place, if land supply is the problem - but at least it would be a source of revenue by which other taxes could be abated.

I  think development contributions (impact fees in some countries) are just another step in the wrong direction. They are really a wealth transfer from entrants into the property market, to the existing owners of property who always had the most to gain from "growth". Land taxes applied across the whole area always were the most equitable way to pay for growth-enabling infrastructure.

This is yet another reason for rising inequality and accumulation of wealth by the few, that I need to add to my earlier list.

"I also think we have been conned into thinking that it is OK for the rich to benefit because it is assumed that the benefits will be shared by society."

Totally agree...one huge con.....but actually I think there is evidence now that at least for a decade they have actually been damaging let alone of negligable benefit.

regards

   Define the problem?...The rich have most of the wealth...answer share it out more equally.Thirty years ago the society of NZ was egalitarian...I worked at the freezing works..and the Headmaster at the local school took home seven dollars a week more than moi.

  Everyone had a wife at home looking after the kids..most had a Holden and a boat they made themselves..Life was sweet,now its shit for 80% of the population..soon it will be shit for the other 20% as well..thats Karma. What goes round comes round. Instead of NZ.being the greatest holiday camp on Earth..it is now a miserable  economic prison, for most of the population.The idiots who did this need a lesson in humanity.They should remember change comes from the bottom up.

  It,s going to get one whole lot worse before we all get focused,and fix the problem.No one likes radical change, and will live in denial untill..they realise that their darling son or daughter is a drug adict,Whos spent many years at school and cant even read.Or thinks working in the sex industry is a clever way to get by.....stoned of course...Health and Education..if they are top notch the rest will tend to look after itself....They are so bad now its a national disgrace.I dispair..its too late.

  We dont need the rich! they are a social liability, they always were.

"Anonentity", I agree with your definition of the golden age, and I strongly believe that the difference between the golden age you refer to, and today, is 99% explainable by the factors I listed in my posts of 12.02 and 12.13.

Add to that, the way Maori have been turned against our proven culture of that era, by left-wing radicals insinuating "victim complex" poison into as many identifiable groups of society as possible. (Women, minorities). Sir Apirana Ngata would be spinning in his grave if he could see what the leftwing poisoners have done to his people today.

European communists like Marcuse and Derrida were the fount of this poison. They meant to turn women and minorities into WMD's against Christian culture, and they succeeded.

The Maori Battalion sang "For God, For King, and For Country", and they meant it. That was the moral foundations of the society that gave you the job at the freezing works, the wife at home with the kids, the Holden, and the boat.

By the way, the (leftwing) urban planners are probably the number one enemy of most of this. There certainly won't be affordable homes with sections and driveways and backyards with barbecues - or a car - or a family (kids=carbon footprint) if they have their way.

PhilBest - note below from Acts what Christian culture is actually about - quite the opposite of a private property rights regime!!!

:-)

Oh no, another person making claims about Bush's tax cuts for the rich!! Straight out of the Huffington Post.

Neville, it's not about the tax rate, but about the tax revenue. Could you first please demonstrate that abolishing this tax cut, which would increase the rate, would increase tax revenue?

Secondly, do you really think someone on $200,000 living in New York can be called rich? You got any idea of rents and house prices over there?

I think we should get rid of Sam Morgan and Rod Drury as they just have too much money. Look what they are doing with their accumulated capital, laying another cable to the US, while we already got one! What could be done if that money was simply distributed to the poor!

Your second point is about Ireland's banking bailout. Who is doing that? Not the taxpayer. It's crony capitalists, politicians who are doing this kind of distributing. And as soon as you start distributing, a rich person has more cloud than a poor one, I can assure you that.

My final point is about all the people on food stamps: it's no fault of the government that companies are not creating jobs? It's just those rich bastards holding on to their money? What a fabulous job would the government do if it just had all that wealth and created jobs and riches for all. 100% employment, just like in all the good days of the USSR.

"Capitalism is the unequal sharing of blessing. Communism is the equal sharing of misery"

- Winston Churchill

So, Winston wasn't very Christianly then;

Acts 4:32-35 And the multitude of them that believed were of one heart and of one soul: neither said any of them that ought of the things which he possessed was his own; but they had all things common. And with great power gave the apostles witness of the resurrection of the Lord Jesus: and great grace was upon them all. Neither was there any among them that lacked: for as many as were possessors of lands or houses sold them, and brought the prices of the things that were sold, and laid them down at the apostles' feet: and distribution was made unto every man according as he had need. 

Marx merely paraphrased it:

From each according to his ability, to each according to his need  .

And the entire paragraph reads:

In a higher phase of communist society, after the enslaving subordination of the individual to the division of labor, and therewith also the antithesis between mental and physical labor, has vanished; after labor has become not only a means of life but life's prime want; after the productive forces have also increased with the all-around development of the individual, and all the springs of co-operative wealth flow more abundantly—only then can the narrow horizon of bourgeois right be crossed in its entirety and society inscribe on its banners: From each according to his ability, to each according to his needs! 

Of course not, christianity was a tool for the upper class like Winston to keep the common plebs like us in check....meanwhile ppl like Winston just do what they want....

All crap really.

regards

Kate - reading Marx's ideology (Utopia) and living in a state that practices this ideology is worlds apart. Have you ever lived in such a state or even lived near people who have experienced it?

Also the conclusion that poverty causes ill health/high prison population/obesity/poor educational performance/teenage pregnancies  etc. appears to me skewered, it is rather the other way round, poor education and no work ethics/attitude to work or the lack of even plain common sense and lack of intelligence is the reason for a lot of people being left behind. The lack of intelligence and to make the best of their life cannot be resolved by the state throwing money at them

An  education to self reliance and responsibility for ones life and ethics in everything one does would help. Getting paid without effort does not encourage  performance.

Which does not mean there should not be a safety net in a humane society for people who cannot really help themselves. Far from it.

To find the middle way is the difficulty - to prevent excessive riches and excessive hardship.

Marxism is not the solution.

Gertraud, it is not Marx's political movement (i.e. communism) which is so instructive regards a way forward, as is his critique of capitalism as a means of social organisation that is particularly useful/insightful.  David Harvey is to my mind on the money in translating Marxian critiques of capitalism and relating them to the current situation that has arisen in respect of capitalism as the means of social organisation.  This is a comparison of capitalism vs feudalism vs socialism (not a comparison of the political platforms of state, i.e. democracy vs autocracy vs communism).  One has to separate out the political (power bases) from the economic (social relations).  In doing so Harvey concludes that there are Limits to Capital (the title of one of his books) - and hence limits to capitalism as a means of organising the social/economic.  This argument is best summarised in the link here;

http://davidharvey.org/2010/08/the-enigma-of-capital-and-the-crisis-this-time/#more-585

Ah, Kate, what Winston Churchill said about Acts Chapter 4, was that that was "all that is mine is thine", but socialism is "all that is thine is mine".

There are practical consequences.

St Paul also wrote somewhere that "if a man will not work, neither let him eat".

Some theologians argue that what the Christian assembly in Jerusalem did at that time, was unique and prophetically-driven, because the Christians there all had to flee from political persecution shortly after, so it was just as well they had all sold up their properties, wasn't it? Perhaps it's an example of the best kind of advice for future events?

Someone else has pointed out that Communism has perverse incentives that destroy wealth. A significant difference with Christianity, is its voluntary nature - people really CAN feel virtuous if they CHOOSE to be charitable.

Social welfare has at least partly become mandatory because post-christian society has a lowered sense of responsibility for themselves let alone others. But it is a chicken or egg phenomenon, welfare also causes the other loss of values.

St Paul's comment would be appropriate for a society with 100% employment and wages adequate enough to sustain the costs of food and shelter to those raising the next generation.

The outcomes of capitalism have proven such conditions not to be possible.

I agree that the socialist component of our current situation is unsustainable.  We need reform on both sides of the present condition.

Oh come on, Kate, when in history has there ever been

"........a society with 100% employment and wages adequate enough to sustain the costs of food and shelter to those raising the next generation......."?

Was there one in St Paul's day?

Has there ever been such a society WITHOUT Capitalism, at least for a period preceding the imposition of socialism?

Even the famous abolition of slavery had everything to do with the fact that for the first time in human history, it was not essential for some proportion of society to work for nothing merely to survive, because for the first time in history, "enough" wealth creation was happening to avert this.

Christians trust of one another has everything to do with why this process of specialisation and trade and wealth creation evolved in a particular part of the world, and yet still cannot even be imposed by emulation in certain other parts of the world today.

The last 30 years have shown Winston was wrong...there was a very good reason he was kicked out after the war ended, the ppl didnt want to go back to the Gilded age which is where Winston would have led them....70 years later of course we have  another huge mess.

and no I am not suggesting communism,  like libertarianism it has never existed in the real world and probably never will.

regards

Increase revenue...this is documented....look it up....even only removing it for those over $250k would increase revenue.

and how about the ppl living in NY on $40kUS?

Second point, indeed....however the fear is that not doing so will collapse the society we have developed, which can formly be laid at the Pollies door....hanging nose anyone?

Rich bastards, indeed lets not forget the claim that trickle down economics would work....it clearly has not its had 30 years of failure. Worse than that, recall the comment GS is a vampire squid.....ie the rich and their hedge funds have been looting our pension funds and starving our employers of funds....we lose three ways, no jobs, no pensions and huge debt....

I am certianly not suggesting that we go the way of the USSR, that outcome can be clearly seen for the absolute failure it was.......what I am saying is I expect there will be a swing to the left and the result will be a far more progressive tax system....and regulation to keep the excesses out.

regards

Which do you think creates more opportunities in NZ for equality - Labour or National?

Maybe we would say does either produce sufficient/enough....

I find it hard to say either.........

regards

The good news is Labour is promising a whole new list of promises!!!

Time to give the wife the good news,we need another baby or two.

 The mid term elections are going to be interesting

http://www.telegraph.co.uk/news/worldnews/northamerica/usa/8067413/Senate-Democrat-leader-battling-to-save-Nevada-seat.html

 I wouldn't count the USA out Yet.

Neville , I always find your pieces thought provoking . On the Issue of the Irish Bank ,  I would like to know your views on Bank Failure . One of the tenets of the Capitalist Banking system is that in order for banks to self regulate their practices,  manage risk and avoid moral hazard ,  they should be exposed to the exact same risks as any other business . Out of line and you risk failure . My view is it should be the same for a bank . What is your view ?

an interesting article ,neville, but a tad incongrous relating it to any nz supposedly rich peolpe..we don't have all that many in the scheme of things and those ,like graeme hart, appear to me to largely be self-made /wealthy.

i get pissed off when i hear Labour politicians or pseudo-intellectuals denigrating our wealthy as if they somehow slipped through a door marked " rich" and were just handed it all on a plate....get real...most of them earned it with acumen or hard yards.i think graeme hart started out as a butcher boy from memory.

however, step outside of our country and go to the super-rich and you're right onto it...the russian oligarchs, the goldman sachs/vampiresquids of this world are a disease for the forces of negativity and they're winning.

but like watching winston peters this morning on " the nation" spouting his usual rave....easy to identify the problem but where's the solution?

Money doesn't buy you happiness; but it sure as hell buys you a far better brand of unhappiness!

What a terribly Anglo-Saxon point of view. (The opening essay by Neville) I wonder what the French would make of it, or the Germans for that matter?

The "problem" is unearned wealth and size, but underneath that it is the "tragedy of the commons" that is the deep seated problem with our system.  With an individual and a small organisation it's easier to work out whether they are in possession of unearned wealth but even then it can take time.  It's not until all of the creditors and debtors get together that they can work out the true position of an entity and even then it's only a paper excercise, a stress test, where all assets are marked to market.  But it's not the actual situation of putting everything on the market.  The system is so large an interconnected that not even the most prudent investment fund, insurer, government or individual knows how much they are really worth.

Once an organisation gets beyond a certain size an exponential feedback loop starts to occur.  Loans come back as deposits, add derivatives and then derivatives on the derivatives.  The numbers on paper being handled by the lawyers and bankers putting together these instruments "justify" their incomes.  We instinctively know that there is some "unearned wealth" (and Steven wants to get it back through taxes - in answer to your other comment - it can't be taxed back) but we don't know, at an individual level who is in possession of undeserved wealth (define this as something that can't be paid back).

Savers, who accumulate deposits at the bank or even cash under the mattress are simply accumulating somone else's liabilities, someone else who, by definition, has had to live beyond their means for a time, and when the saver wants to be paid and finds out that they can't, well of course they feel aggreived.  This is a fatal flaw in the "system", there is no ongoing process of "settlement and clearance".

But the news is bad, we are all living beyond our means (in the Western World at least), oil that has backed the spending that has taken place, resulting in the trillions now in circulation.  But underneath it all it is the tragedy of the commons which means that if we don't take it, dig it up or chop it down someone else will so we may as well do it, so we go ahead dig it up chop it down and accumulate unearned wealth.

Without a comprehensive new concept to life can we revive our economy ?

I strongly recommend to listen to that video to everyone. Many issues apply also to New Zealand. What do you think ?

http://www.youtube.com/user/InflationUS

An interesting conglomeration of sound bites.

On the question of whether individual liberties are being eroded by the crony capitalist "State" - of course they are.

On the question of whether it's a good idea to prepare for potential hyperinflation - yep, I'd agree that where consumption/commodities are concerned (not labour, unless there is a big shift away from neoliberalism), but I think one also has to prepare financially for asset deflation, a sort of accelerated depreciation, at the same time - a double whammy. 

Yes, generally I agree....inflation anyway in some areas/sectors, eg energy related, food, transport....huge deflation in others, consumer goods, whiteware, TVs...retail will suffer badly. If as you are suggesting "not labour" which I agree then Im pushed to see hyper-inflation because wages will be subdued.......so the classic defination of inflation is too much money chasing too few goods out in the real economy...if labour is in a bad way......I cant see how we get hyper-inflation.

regards

Nonentity says as a meat worker he earned about the same as the local headmaster.  That must have been in the days when Blue Kennedy  ran the meatworkers and virtually NZ!

I don't hold with the outrageous payments those corporate managers manipulate to pay themselves, but seriously what incentive would there be to study hard and qualify for a profession (at considerable cost) if you could  get a similar pay not needing to spend years and years of training? Surely the local teacher should get more thsan a manual worker?I

And it is now an international market so if it's not worthwhile in NZ some will go overseas, even just as far as Australia.  Egalitarianism is just as problematic as corporate greed. Neither is the answer.

Surely the local teacher should get more thsan a manual worker?I

Why?  Higher education is a cost to society at large (as well as to the individual) - not only in monetary terms but the individual seeking higher education also delays/denies wider society the product of their labour during the term of their education.  I assume alot of people enter higher education because they simply don't want to enter the workforce immediately, or they aren't physically suited (or personally inclined) to the more strenous trades/work types.  Certainly, crawling around under a house and digging ditches in cold, damp environments is physically alot less plesant than addressing a class of students in an environment sheltered from the elements.  It is also less taxing on one's physical condition in terms of aging.  

Kate...  I always read what u have to say...  mostly very good stuff.

BUT... this comment.

"Higher education is a cost to society at large (as well as to the individual) - not only in monetary terms but the individual seeking higher education also delays/denies wider society the product of their labour during the term of their education."

This is a form of "twisted logic"....  Why don't we say that sleep is a cost to society,... or leisure time, or going to church..?????  these all deny society  "the product of their labour"..  ( in the context of your logic )

Common sense suggests that , in terms of income, People should be rewarded by the marketplace in terms of supply/demand..... and risk.   This determines value ( price). 

Level of education/knowledge/skill required for a particular field can be related to levels of scarcity on the "supply" side of the equation.

Obviously Richie McCaw will always make more money playing rugby than I ever will.

Obviously a teacher will always earn more than a manual worker.

In the end it is the balance and tension between the individual vs society,  that defines and determines what kind of system we have.

I believe that individuals operating in their own self interest , within the context of oversight and regulation ( referee ) of Society....   is the most adaptive an innovative system we could have...    

 

cheers  Roelof

 

 

 

Well, that [your concluding sentence] is indeed the system we have now...  so why do we see such wide wage disparity? 

Higher education should (to my mind) be viewed/treated as a privilege - not a market commodity.

I think you and I would mostly agree on that, Kate.

I think it is ruinous for a nation, to be subsidising young people to spend years studying for a qualification for which there is little or no demand out in the real world - OR for a qualification for which the only source of employment is a kind of a racket at the taxpayer's expense - OR to spend a few years partying and drop out.

One suggestion I make, is for young people to have to work and save for a few years, saving into a "tertiary education account", before going to uni. The savings could be subsidised, but at least idealistic young twits might get familiar with the real world and make more careful choices of qualifications.

Another problem is the "everyone must have prizes" approach to education. There is such a thing as "too many people going to uni". For some people, tertiary education is a waste of time and money. (our money as well as theirs, which is what gives us the right to comment).

But I do agree that low-qualified and less intelligent people should still get a fair go in terms of tax rates and pay rates. It is actually the willing-to-work low qualified worker who has the most to gain by moving to Aussie. Pay is higher and income tax is free up to a much higher level than ours. In fact, the Aussie income tax payer is way ahead of us right up to well into triple figures of income. 

    Kate is talking about subsidized higher eduction being a cost on society...  ????? and in that context , it is a privilege.

Ok ..I get it now....

I agree with what Philbest says about tax and low income workers.

Kate... thats' not the system we have now...  

  If I had to come up with a label to describe what we have... I might call it "Debt Capitalism". Debt Capitalism which only espouses free market jargon/principles , as it suits its needs..  ( Just as ,so called, communism does not represent the writings of  Marx. )

I call it Debt capitalism, because it is as much the nature of our Monetary system, and the resulting "Financialization" of our economies, that has lead to such a vast disparity in Wealth.

Throw on top of that, the corruptive influence of special interest groups , and the lack of ethics and morals in our political systems...  and we are here. (Add in the modern evolution of the "multinational "corporation... which almost exists outside of "society", and is amoral and has no social needs.)

None of this is truly based , on what I understand to be, free market principles.

I was also trying to say that the changing balance/tension between individual vs Society, means that a workable system is actually a synthesis of different philosophical, economic and political ideas/systems....  and is a process of evolution and adaption.

I never implied that higher education was a market commodity.....  I said that the market values the different fields of study by the dynamics of supply and demand. 

A better question for u to answer is.....   What do u think motivates young adults to make the short term sacrifice/investment of the higher education...???   Do u think it is Self-interest..??   What motivates them in choosing their field of study...????  

Is the motive of "future earnings" any less relevant than the motive of " the love and passion of the subject"...  eg. the arts.

AND none of this is any more or less a privilege than, say, people deciding to become plumbers or candlestick makers.

I suppose the real privilege is that we are born into a  relatively, free and open society which has a good legal system and a functional form of democracy. ....   Some people have had to fight and die for this... which we are born into..

ehhhh.... this is reading like a lecture... sorry..

 

Cheers  Roelof

 

 

".........Is the motive of "future earnings" any less relevant than the motive of " the love and passion of the subject"...  eg. the arts......."

Let's subsidise collectors of paintings, sculpure, and recorded music, then.

I say, go to uni to study these things on your own dime - not mine.

Useful courses should and do attract scholarship funding from industry and employer bodies. But I fully agree with enlightened philanthropists offering scholarships in the arts to DESERVING students.

Phil, the problem with relying on enlightened philanthropists is that "trickle down theory" just doesn't work to the degree necessary to support the numbers/costs needed to ensure we remain a first world population.  I believe the state via my taxes should fund a far greater number of full scholarships (free teritiary education) and subsidise a far lot less general enrolments.  We have too many university enrolments per capita population.   And we need to up the ante with respect to subsidising the trades.

Debt capitalism is a fair description but fails to describe the other factors which you so rightly point to - and the insideous nature of global power elites.  Don't know if you read another thread where I posted this - but it's the best explanation I've seen in describing the new 'world order' or the ideology being promulgated by our leaders of today: globalisation.

http://mams.rmit.edu.au/es4cefpg6ifj1.pdf 

I agree on the synthesis and the evolution/adaption of society ... but I believe to fight globalisation will require a mammoth effort - which will have to include quite radical proposals for change in many areas.  Not the least being we need to begin teaching the theory of ethics in our schools.  Hopefully such change can come through democratic means, but for starters individuals need to realise the old 'left' and 'right' prejudices don't apply anymore.

I teach at university level and I'm sad to say that a number of my students have told me they enrolled at uni because "if you don't your seen as a no hoper".  This is a sad reality of higher education having become a market commodity as well as a definer of social class/status.  There is a stigma associated with not having a degree.  I recall asking a struggling student what she was really interested in - she said hairdressing.  Why should she feel embarrassed to tell me that?  Why shouldn't she pursue that and be proud of it?  Tertiary study for many is just plain nonsense - it's not what they want, but then neither do they want to be poor in a low wage job for the rest of their lives.  So they study - and they struggle to pass - and they rack up unnecessary debts - and they feel even less capable/confident as a result.

Jesus was a fisherman - his father a carpenter.  These are, to my mind, noble professions - but they don't return a living wage - and indeed many of these workers are treated more like indentured servants. 

Yep, mine turned into a bit of a lecture too!  I always enjoy your input, Roelof.  We're both on the same page - the first step is recognising the injustices and we're both very much there!

The incentive is interest in the work....I seem to recollect some studies saying that pay is actually a poor incentive tool for most ppl.....for some it is the be all and end all.

Another example if ppl were motivated purely by money wouldnt we all be say lawyers?

regards

It should be possible for lawyers remuneration rates to drop if too many people become lawyers. NZ already has per head of population, more lawyers than any other country except the USA and Brazil.

This measure is a possible sign of an economy being strangled in red tape.

Possible but very un-likely....a measure....and in fact when we look at  how easy it is to setup a business in NZ and run one I think the OCED stats say NZ is one of the best.....Therefore maybe we need more lawyers...

;]

regards

The OECD's findings is more a case of "what" their typical case studies are by which they define "ease". Their approach actually allows NZ to look better than it is.

Besides ease of setup and running, there is also the case of financial viability in the face of punitive regulations and laws which tilt the playing field in the favour of local stickybeaks and ratbag employees (and both their lawyers).

The OECD may be failing to rank nations according to "observable consequences of their particular framework"

THE SPIRIT LEVEL IS JUNK SCIENCE

 

Sorry, I had to put that in caps just to make it noticeable this deep into the comments.

http://super-economy.blogspot.com/2010/02/spirit-level-is-junk-science.html

Also check out http://spiritleveldelusion.blogspot.com/2010/08/todays-report-in-guardian.html

Naturally the authors have been labelled right-wing spin doctors by those unwilling to read their critiques or try to understand the "science" in the book. They have had their preconceived notions confirmed, thats all they want.

Chris Snowden has a book called the Spirit Level Delusion. Its worth a read if you think The Spirit Level is a genuine theory of everything.

The truth is, The Spirit Level's "scientific" arguments fall over fairly quickly when you start to look at the stats. The book exists simply to promote a political ideology. It is a blunt object people can use to bludgeon their opponents, saying that they have the "facts" on their side, as determined by "experts" using (saintly) "statistics" and "science".

Perhaps the most telling thing in the article above is the overly-glowing compliments Neville gives to the authors. Given the easy critiques in the links above, and the books authors odd inability to counter them with rational arguments, Neville's effusive praise makes me question how critical he was of the work when he read it. Its a nice feeling when you read a book that tells you you have been right all along, and it seems Neville didnt want to make that feeling go away by doing something stupid like asking some fairly obvious questions.

If TSL proves to Neville's satisfaction that every problem in society is caused by inequality  (and that IS what the book is saying, take a second to think about how retardedly convenient that is) then I reckon he is far to easily satisfied.

This is a bit startling. I have not read reviews but will. Thanks: this is the advantage of a blog--it allows us to progress

OK, then I take back the negative statements in light of your willingness to look closer into it.

The thing about the critiques is that they dont mean that inequality doesnt cause bad things, just that there is nothing in the Spirit Level that show it does.

 

http://spiritleveldelusion.blogspot.com/2010/04/20-questions-for-richard-wilkinson-kate.html

Here are some questions that were put to the authors, their response, and re-response to get you started.

Looks like Snowden also has a blog on it. Its free and the book is not, so have at it :)

http://spiritleveldelusion.blogspot.com/2010/08/todays-report-in-guardian.html

One point I didn't make before which I should have done is that obesity is a biological condition, with biological causes, NOT an economic condition with an economic cause. The assertion that income inequality is somehow to blame for obesity is laughable.

However, if you are determined to have it as a economic condition then it could be just as easily argued (and again wrongly) that weight is a function of a person’s drive and ambition, determination, hard work and discipline, the characteristics of those who succeed. Those characteristics protect the successful from becoming fat as this group has the discipline to watch and maintain their weight. On the other hand these characteristics are lacking in the poor. The lazy are poor and fat; hard workers are rich and thin. Hogwash I’m sure you’ll agree.

While there is a known association between poverty and the incidence of obesity in the US, as any 6th form statistician will tell you, correlation does NOT imply causation. And it is certainly not the case that the poorer you are the fatter you are, or the richer you are the thinner you are. Even in America. This is just nonsense.

I think the link people try to make between inequality and obesity is that inequality makes people feel bad, and that they eat when they feel bad, and eating makes them fat.

Of course, there is also an argument that inequality increases violence. Now in a country with strong gun laws, violence would have to be more physical. So it could be that at some point inequality would reach a level that the weight gain would be offset by the physical exertion of violence.

This is, of course, a ridiculous line of thinking. But it doesnt look out of place in most inequality discussions.

 

In any case, David B, most inequality studies do not consider income level, only income disparity. The authors of The Spirit Level have actually said that they do no consider income level to be a factor in any of the things they considered. It is all because of inequality. Everything bad is because inequality. It really is an awful awful book.

duplicate posting deleted

Neville

High income earners already pay a massively disproportionate dollar value of NZ's tax take. Your suggestion that we  'have  a low redistribution element now ' is in the face of this self evidently, simply wrong. 

Your sentiments about ultra HNW's who create elaborate tax shelters make great populist fodder, but the reality is the number of these people in peasantville NZ, is tiny. 

The vast majority of our tax take tax is paid by hard working 'high' income salaried people who have striven for their success, who don't mind paying solid marginal tax rates to support our society but resent academic treatises which lump them in with the ( in NZ ) largely mythical ultra HNW's.           

"The vast majority of our tax take is paid by hard working 'high' income salaried people"

BS -can you give figures on this Middleman or show that these folks work harder than anyone else or are you just regurgitating a convenient myth?  Someone on the median wage ($520/week) is hardly in a position to pay more tax, there is simply nothing left after covering their most basic needs - food, shelter, power, clothing and transport. That hasn't stopped our present Government from raising GST by 20%, slamming higher vehicle rego charges and ETS costs on to the rich and poor alike, only differance - there was little or no  compensating income tax break for the working poor in NZ.

Perhaps you might like to get off your high horse and have a chat to folk on the middle income, easy to spot, they're the ones working their butts off in  farms, factories, supermarkets or construction, the ones with missing teeth and worn out shoes. I'm sure they'd love to be able to pay more tax.

I believe there is a huge, hidden subsidy from the working poor to the already wealthy. I recounted previously on the Asian seamstress needing to work for a thousand years to buy the Sydney dog groomers million dollar home. We have similar though less dramatic inequality here. Someone on the minimum wage would need to spend their entire weekly take home pay to have a dentist work on their teeth for an hour!

Open wide...wider...ah I see it...almost got it...stop slobbering ok...this won't hurt a bit...there we are....you can relax ...I have the pliers firmly clamped on your wallet...out she comes....oh it's a good one too...downpayment on the beemer with this one!...now have a good spit..............

spot on KD

there are people who work very hard for wages that are almost unliveable.

 

i don't think anyone here is arguing for a communist utopia, but there is definitely a valid question around income disparity and the problems it brings.

 

a story: some years ago i lived in palmy. i went away for the weekend and my house got burgled, including some unique shirts i got in asia some months before. a few weeks later i saw a teenager loitering outside paknsave  near closing time, wearing my shirt. i went up to him (to bash him, i thought) and then his mum came out....we started talking and long story short there was no dad, mum worked 2 jobs, hardly ever saw junior, so junior fell in with some bad company and started doing burglaries. his mum made him bring all my stuff back and mow my lawns. they weren't bad people, but their situation was pretty grim. 

if you put decent people in a shitty situation the results usually aren't pretty, and i think growing income inequality is a factor worth examining in a wide sense.

well said both KD and VL.

Yes.. I listened to Celia lashlie talk. She has had a lifetime of experience working in the prison system and with young troubled men.

She say we spend Hundreds of Millions of dollars building new prisons. She says she has witnessed the "soul and aliveness" , the humanity , being sucked out of men in the prison system.. These guys can come out worse than they go in.

She says we would make a difference if we spent those Hundreds of Millions on helping these people when they are still young children.

$20 an hour for teacher helpers.... for one on one with these at risk kids.... That would be a start.

She says, as you do, that they come from mostly troubled home lifes.

Makes alot of sense to me. ....   and could also provide meaningful employment to both Retirees and Solo Mums looking for part time work.

I vote for Celia lashlie as the next Corrections minister AND also minister of Education.

I just love the "self-evident" and "common sense" lines....when I see those I know the poster lacks any real argument and is trying to put anyone who dis-agrees in a negative light. Thats just rubbish.

These ppl may well be a tiny % (which is the point they are indeed <1% but take a huge % of NZ earnings), but the IRD has been recovering a decent % of tax from such dodgers...millions.

We also have hard working ppl who earn little...In terms of hard workers those who run a business I have time for, indeed they can work hard and take a genuine risk and employ ppl.

However there are many who simply place their money in hedge funds and expect a huge return, but from what I can see these ppl are parasites on real business owners and their workers...they are placing a private tax in effect....

So as far as I am concerned tax them out of New Zealand....they are doing more damage than they do good.

regards

 

Forgive me if I do not read through the above in detail.

Criticism of the low level earners for their apparent lack of financial nous or for whatever reason is not productive.

I would more readily criticise the rich for their methods of climbing on the backs of those below them.

It is the beer barons who paid the low wages and then extracted most of it from their wage slaves to boost their coffers and build the mansions. (Note an exemplar only)

Society allows the lawyers to rort society with outrageous fee structures in an example close to home.

Regrettably the tax structure today does little to compensate for this type of ill.

These so-called high-income people work no harder than your average hospital orderly but expect their massive compensation as of right and then sceam if they have to pay a high tax rate.

Rant over.

That's only a wee rant Basel....biff a bloody rock or three!

Relax basel...enjoy the news that the downturn in the real estate ponzi scam that is Noddy's economy..is booting the legal bum good and hard....some lawyers are having to drink instant coffee!

Not to worry though...they still have their private 'benefit' scam going for them....the legal aid handouts are always on hand when the Bentley needs replacing. They can count on a stupid govt and the criminal mob. Money for old rope Basel.

hey wol i've got a question for you. 

i'm not looking to pick a fight, but i was wondering how you see speculating on precious metals to be different  to speculating on housing? i mean, neither are actually productive, and metals obviously enrich the banks less than property, but how, in your opinion, do they differ?

regards

VL

Totally agree.....

regards

Novartis-CEO D. Vasella earner of SFr 40 million p/a and paying nearly sFr 1 million into the compulsory retire scheme in Switzerland made the proposal for relinquishment of the payout of more then sFR 10’000.- per month for the rich turning 65 of age. The reason given: The struggling AHV retired foundation. Nice guy isn’t he ?

Capitalism and extreme (ine)quality Hhhuuuu !

...and away from the subject - how on earth (with the current formula) can Kiwisaver survive ??????????????????

Is anyone in kiwsaver making money every year? ie consistantly?

From what I can see the entire financial system has been rorted for a few for short term gain...us 'workers" are not only barely (if lucky) any better off with wages the pensions we have tried to amass are getting pillaged.....

regards

"..from what I can see.."

Time to put the specs back on Steven.....the rorting is a fact of life...Humans are involved!...why even some "workers" are into rorting when they spot a good rort...which is not very often on account of the trouble they have in seeing well...without their specs on!

Yeah, yeah tax the rich, the blood-sucking bastards. Let's put up the tax rates so that they all piss off overseas, We don't need doctors etc anyway.  Except for when we get sick, and then we can blame the government anyhow.

Doctors are rich?

I hardly consider a GP say on $100~150k a year rich....in fact I dont at all...

In fact this is a very good example....long education, long hours and you hold ppls lives in your hands and live with yourself if you make a mistake or could have done better, and the average GP wage is $120k I believe...

v

A lawyer or accountant on twice that or a CEO several times that who from what I can see are better off being on golf courses out of the way....

ie the amount you earn bears no relationship to how hard you work or how useful you are to society.

So I would be all ears on a system that corrects that........

regards

 

It is and always will be a regrettable fact that there is no link between proactive benefits that an occupation can bring to a society and the harm caused by reactive (reactionary?) occupations like  the law and money.

If it were so we should pay a nurse much more than we pay a lawyer.

Yes, isnt it annoying that someone else spends their money in a way that you dont think appropriate?

I mean, how frustrating. I am sure if YOU hired anyone, YOU would pay them comensurate with their benefit to society, even if your personal benefit (or business profit) from their employment was much lower.

For instance, I am sure given the opportunity, you would pay your street sweeper a few hundred thousand dollars each.

"Doctors are rich?"

Yes, a person on $150k per year is rich. They (and by this I suspect I mean you) may not feel rich because they have big mortgages, and they buy bigger cars and boats, and go on more holidays, and eat better food, and send their kids to better schools.

"ie the amount you earn bears no relationship to how hard you work or how useful you are to society."

Of course not. What a stupid idea. How much you earn has a direct relationship with how much someone has to pay you to do stuff for them rather than doing other stuff for someone else. LDO

If you want people to be paid based on their usefullness to society, then you are demanding that the lowest skilled work be paid the highest wages.

To use your example to ridicule your idea, a heart surgeon would not be paid very much at all under your preferred system. They arent much use to society. They are very bloody useful to the 100-200 people whose lives they might save each year, but not very usfeul to society as a whole.

By your logic a garbage collector should be one of the highest paid individuals in the country. Their unskilled labour contributes more in total than the highly skilled labour of heart surgeons. Instead of doing a lot for only a few people, the garbage collector does a little for a lot more, and more often to boot.

You are in desperate need of a decent "sit down and think" about basic economics. Start by asking yourself why water, a good necessary for life itself is practically free, while diamonds, which outside of some industrial uses are nothing more than pretty shiny rocks, are more expensive than most people can afford.

The problem that hits me forcibly here, is that the low income workers and the people who represent them, simply lack the intelligence (or in the case of the politicians, the honesty) to support "best" solutions. Instead, they support "killing the goose that laid the golden egg" solutions - as Kate was saying, taxing income and profits - when they should be taxing land and speculative gains.

The landowner class and the financial market whiz kids are laughing all the way to the bank - a lot of these people actually FUND leftwing political parties and environmentalists because it increases their opportunities to rip off the rest of society and the real producers of "wealth for all".

I cant immediatly see why the landowners are  "bad boys".........

ie what is the difference between an employer owning a factory and producting a good and a farmer? or a wine producer who uses the land?

Finance I think was useful now however the theory of what its good far has long been irrelevent I suspect.

regards

Good question, that leads straight on to an illuminating (I hope) answer.

None of these people are "bad guys", but in so far as they suddenly all find that "hey, I can make a lot more money just owning land than I can from doing all this producing and hiring and selling and hassle and stress......"

THEN, my friend, we have an economy in long term decline.

"Finance is / should be the handmaiden of industry" (I forget who said it).

good article on this subject in today's new york times

http://www.nytimes.com/2010/10/17/business/17view.html?_r=1&hp

particularly like this section on "expenditure cascades" pointing out how the fabled trickle down effect is actually a healthy flow and it is not of in the form of benefits and wealth but raised expectations and pressures....

"Recent research on psychological well-being has taught us that beyond a certain point, across-the-board spending increases often do little more than raise the bar for what is considered enough. A C.E.O. may think he needs a 30,000-square-foot mansion, for example, just because each of his peers has one. Although they might all be just as happy in more modest dwellings, few would be willing to downsize on their own.

People do not exist in a social vacuum. Community norms define clear expectations about what people should spend on interview suits and birthday parties. Rising inequality has thus spawned a multitude of “expenditure cascades,” whose first step is increased spending by top earners.

The rich have been spending more simply because they have so much extra money. Their spending shifts the frame of reference that shapes the demands of those just below them, who travel in overlapping social circles. So this second group, too, spends more, which shifts the frame of reference for the group just below it, and so on, all the way down the income ladder. These cascades have made it substantially more expensive for middle-class families to achieve basic financial goals."

Neville

The thing I see missing in this this lower income versus HNW debate is effect of the gutting of the middle class, which has been under attack by both political sides, Liberals have usurped their role and the free market capitalists have exploited their productivity.

So what is the result? the lower socio-economic groups have lost hope and any trace of societal responsibility (what be self relient if the nameless state will provide) and the state (both left and right wing) in turn have become pawns to HNW that continue to concentrate wealth.

Somethings gotta give...

Neven

I am accumulating on decline of the middleclass. i include but one quote:

"The claim made by the IMF's Financial Stability Report in 2005, in a seemingly throwaway remark, was that households had become the financial system's "shock absorber of last resort". In other words, whereas in previous eras, much of the pain of recession and financial crisis was borne by businesses or governments, with families afforded some degree of protection by the pensions system or welfare state, it was now households who were far more likely to face the music."

http://www.telegraph.co.uk/finance/economics/7865154/Middle-class-families-face-a-triple-whammy.html

i think it is serious..another quote, i have misplaced, says middle class in UK is less likely to be able to leave a good estate

Neville

I think we will see the US Middle class bite back with this fraudclosure crisis, The thing that makes them an easy target (empathy, righteousness, responsibility) are also they things that will make this ideal for them to vent their frustations.. ie they can rightly go to court and claim this is "unfair", they can bring the banking system to heel

Neven

The choice next year is a National-Maori combo, led by a now popular John Key, v a Labour-Greens combo, led by a now populist Phil Goff.

So who's it going to be?  Will probably depend on the prevailing mood of the country  in about a year's time.  All the economists point to an improving terms of trade that will be very apparent next year= if so, then National-Maori are in the box seat, but woe betide if things deteriorate (that's when populists appeal) and double woe if we haven't  won the RWC!

I think something I have been arguing on another thread has suddenly become relevant here.

One of the biggest accumulations of wealth in history has occurred in recent years because of the following factors.

As cities grow, land values rise in the more conveniently located spots. (Ricardian rents). This is usually a long, slow process, but one that nevertheless has made land investment attractive. This is merely a part of free markets functioning, and leads to more efficient uses of land.

The more relaxed zoning is, and the more "mixed" the use of land is, the "flatter" the urban land values will be, because there is a kind of democratisation of convenient locations.

Urban fringe land prices are the denominator of all the urban area land values. Furthermore, these values represent a natural "vent" or "limit" to how high the prices can go throughout the metro area, because these prices represent a "convenience" premium relative to the fringe land.

When urban fringe land becomes the subject of large speculative gains, due to limits on "conversion" of non-urban land (for which the price cannot be affected at all by urban uses which are only a tiny fraction of the non-urban uses) then ALL metro area land prices follow suit - ALL metro area land becomes the subject of gains that are purely speculative, not related in any way to increases in efficiency of use.

The gains to be made by existing land owners, are at their maximum in the centre of "monocentric" metro areas. Both monocentric urban planning and limits at the fringe, have increasingly been the fashion for 20 years.

When several square kms of land that is already worth millions per hectare, inflates in value by several hundred percent..............do your sums. If there has been a "concentration of wealth" over the last decade or 2, this is where MOST of it has happened.

People gambling on horses, or the share market, or on bonds; is peripheral to the health of the economy compared to land value movements. People gambling on paper, has little or no effect on every man and his dog in the street compared to what happens when everybody's land - existing businesses and householders - goes through years of inflation in value that seems it will never end. As we are finding out now.

Another good article Neville.  Your articles both here and in the NBR are always well worth the read.

The Spirit Level ("TSL") generated a lot of interest. It was an easy read and the conclusions appealed to many people in these troubled times. In particular, it appealed to left-leaning Governments is ceased on the results to push for bigger government  and greater wealth tranfers.

However, while the book has some valid analysis, the Economist had an excellent piece about the "research" being weak. In particular, the analysis failed to consider the cultural factors and the unique attributes of the countries in the study.

TSL concluded that countries such as Japan, Norway and Sweden had cohesive societies because they had income equality. In fact, the Economist shows that these countries had income equality because they have social cohesion. In particular, these countries have culturally homogenous societies with stong, established social structures of adherence and conformity. i.e. a high tax, high welfare state worked because "everybody played the game". Social structures ensured that people worked hard and did not abuse the system. People were happy to pay high taxes because these taxes were used for excellent education and health systems which they benefited from. Their neighbours also worked hard and paid high taxes.

What is fasinating about the recent strong swing to the right-wing in Sweden and other Northern European countries over immigration (particularly muslims) is that the highest concern of the public is that the immigrants are not working, having too many children and are abusing the welfare system i.e. they are not playing the game. They are worried that unless they block immigration, the high tax, high welfare system will collaspe,

Applying the Nordic and Japan  model to multi-cultural, liberal societies such as the UK and NZ has been destructive  financially and socially. Helen C. thought the model would work in NZ and applied it for 9 years by taxing the rish and transferring the wealth. The result was the significant growth in the underclass, one of the highest increases in equality in the OECD and a mybrid of other social problems and an exoduc of our productive people to Australia.

Instead of following such models, we need to develop a model for factors in the multi-cultural and unique charteristics of NZ.

 Now in terms of welfare, what research has showen is that people are happy and suffer fewer social problems when they feel that they belong and contribute to society. This condition in hard-wired back in humans since we lived in small clans and all members contributed to the survival of the group. 

Why welfare dependency, paying people to no contribute to society is that it reinforces the self-perception in people that they not a contributor and undermines their self-worth. No wonder they resort to substance abuse, crime and abuse.   

I did enjoy The Spirit Level. I thought that The Economist ignored the book for some time , waited for others to attack then went for it. Many of the arguments they put up - and that others have put up against the central ideas of the book were actually covered in the book itself.  The FT on the whole (review by John Kay) kind of  liked the book, The 'anti' blogs then selected bits of John Kay's review to suit there point of view. 

The book did not give one 'single easy answer'  to inequality for all countries to adopt. One of the main conclusions I reached after reading it was that more equal societies do better on many measures than less equal societies (- it helped that this was the subtitle) This does seem like a good place  for New Zealanders to start thinking. 

Like wise they showed example of  Portugal which does not fit the Anglo Saxon model at all yet does very badly on most measures and is very unequal.

A great deal of research has gone into understanding fairness, why does it matter what does it mean and why does it seem hardwired into us. My understanding is that fairness exists across all cultures and predates them all. All they way back to our hunter gatherer past.

I have read the blogs against the book as well and they seem to take a similar path to that shown by The Economist. But to what end? Sure we are not all Japanese, or Swedish. We know we have to come up with our own answers to our own problems these answers may not be to simply ape the current Anglo Saxon model however. Part of our problem could be called- 'The Curse of English'- All our media is in English. All our ideas come from English speaking Countries or filtered through them- does this give us a broad enough portfolio of possible answers we could discuss t see if they would work for us- probably not.

One thing I would say is that there are a lot of very well meaning people who write into this site and debate the issues of the day, this has to be a good thing.

I did have  to laugh a bit when the idea was raised by GG that 'Helen and Co taxed the rich and transferred the wealth', when they actually presided over the greatest transfer of wealth from poor to rich that this country has seen since colonisation. But apart from that slip all good.

Capitalisim is Democracy. Wish I'd thought it first...it's a quote from a current release movie titled "I am love". The turbaned guess sits at the huge family dinning table next to the wife of the textile baron who is selling the empire his father built.

She says - "how can you just walk in here and destroy so many generations of culture, pride, this family and all who live through us". Just because you have money.

Don't quote my quote...see it.