4/1/2012 4 13 pm
Of inequality. I guess Marx would
have been proud of social justice at work.
Richard Blandy's brilliant article Inequality can benefit
society 4/1 should be used by the goons [come on editor - leave it in] of the
union movement who insist on their unilateral right strike. Yet they decry the
bosses the obverse right to close their doors!
Remember Qantas? What a sham Labor ministers and leftist
acolytes made of common sense - in claiming essentially that they did not think
the boss meant it!
The cuddle - pies wanted yet another warning!
Such inequality. I guess Marx would have been proud of
social justice at work.
Anyone thought of creating a dictionary only luvvies of
the left would use?
And the obverse: economically rational words they would
not!
Geoff Seidner13 Alston Grove
East St Kilda 3183
03 9525 9299
Inequality can benefit society
RICHARD BLANDY
The Australian January 4, 2012
Those
reforms also resulted in an acceleration of economic growth and a faster rate of
increase in average living standards. Real gross domestic product per head rose
by 1.6 per cent a year in the 70s, but by 1.9 per cent a year from 1980 to 2010.
There appears to be a trade-off between faster growth in average living
standards and more inequality.
The
Occupy movement is a protest at the apparent unfairness of such inequality. The
view that economic inequality is unjust goes back a long way. "When Adam delved
and Eve span, who was then a gentleman?" chanted the English peasants in the
Peasants Revolt of 1381. "Property is theft," said the French anarchist Proudhon
in 1840. By contrast, tycoon John D. Rockefeller said in 1905: "God gave me my
money. I believe the power to make money is a gift from God, to be developed and
used to the best of our ability for the good of mankind."
According
to the most reliable international data source, the CIA's World Factbook, 2010,
the countries with the least inequality in income distribution are Sweden and
Norway, although even there the top 10 per cent of families have incomes six
times as great as the bottom 10 per cent. Australia stands 25th out of 134
countries, with a similar degree of inequality to Denmark, Ireland, The
Netherlands, Canada and France. The US is 93rd, with a similar degree of
inequality to China, Russia, Argentina, Singapore and many developing countries.
Typically in this group, the top 10 per cent of families have incomes 16 to 20
times as great as the bottom 10 per cent.
According
to the Australian Bureau of Statistics, the top 10 per cent of families in
Australia have "equivalised" incomes (incomes adjusted for differences in family
size and composition) only four times as great as the bottom 10 per cent. On
this assessment, Australia would have one of the least unequal income
distributions in the world.
Three
conclusions stand out from these data: all countries have some degree of income
inequality; Australia's degree of income inequality is not extreme; and economic
development reduces inequality, although the US is a notable exception to this
tendency.
Incomes
are unequal because of individual economic freedom and luck. If everyone were to
start with the same wealth and income, and each family were allowed to try to
better itself by saving and investing, some families would make winning
investments and others would make losing investments. In the next generation,
some winning families would make further winning investments, while others would
make losing investments. Some losing families would make further losing
investments, while others would recoup their initial losses. After a number of
generations, a few families would be very rich, a few would be very poor, and
most families would be somewhere in the middle of the income distribution.
As
a result, the real starting point in every free community is an unequal
distribution of wealth not only in physical capital but in human capital
(endowments of IQ, skill, beauty, physique, health, temperament and so on).
These unequal endowments, of course, give some members of future generations an
unearned head start in the income stakes and others an undeserved handicap.
The
degree of inequality in wealth in a community depends on how unrestricted the
bets are that people can make to better themselves, and the pay-offs that are
allowed. The US has such a high degree of inequality because there are fewer
restrictions on the investments that can be made and on the pay-offs that are
allowed.
According
to the ABS, the bottom of the top 10 per cent of families in Australia have a
net worth of $1.475 million, which in "equivalised" terms is 43 times as great
as the net worth of families at the top of the bottom 10 per cent. According to
the World Distribution of Household Wealth, Australia's degree of wealth
inequality is about the same as Italy, The Netherlands and Canada, and much less
than the US or Switzerland.
As
Rockefeller appreciated, inequality can be justified only if it is valuable to
the community at large.
The
individual freedom that gives rise to inequality, of course, is the principal
reason for seeing community value associated with it.
Further,
whatever the community's cost-benefit balance sheet may be on Rockefeller's
business activities, the investments that people make that lead to inequality
also often create value for other members of the community, whether or not the
investments become valuable to the investors themselves. The investments lead to
greater economic activity and the discovery of new products, services and better
methods of production (which are readily copied or taken advantage of in other
ways, making other investors winners).
If
the community as a whole gains from these investments, it does not make sense
for the community to stop people saving and investing, even though this leads to
inequality in wealth and incomes.
Efforts
to reduce inequality focus, therefore, on reducing the private gains and losses
from saving and investing (by taxing winners and providing income support for
losers) while attempting to avoid reducing the saving and investing activity;
and on providing government support for human capital investments in education
and health across the community.
A
tax confiscating all income above a particular amount would lead to a cessation
of effort beyond that needed to gain such an income. This may satisfy our
egalitarian urges, but it would also make most people poorer. Consumption taxes
(such as the GST), resource rent taxes, land taxes and the Higher Education
Contribution Scheme would seem to be good taxes in this regard. Mildly
progressive income taxes, particularly income taxes that have a high income
threshold and few steps, are acceptable taxes as well. The jury is out on death
duties, but Australians seem to have made up their minds against these, so the
economic effect on the community of their reintroduction would probably be
adverse.
Richard
Blandy is an adjunct professor in the school of management at the University of
South Australia.
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