Wednesday, 4 January 2012

Equality / egalitarianism Labor style

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 Seidner
13 Alston Grove
East St Kilda 3183
03 9525 9299

Inequality can benefit society


The Australian January 4, 2012
AN OECD study of income distribution in developed countries finds the share of national income of Australia's top 1 per cent of income earners increased following the economic reforms introduced by Bob Hawke and Paul Keating in the 1980s (and continued by successor governments). That share increased from 4.8 per cent in 1980 to 6.3 per cent in 1990, to 7.2 per cent in 2000 and to 8.8 per cent between 2000 and 2008.
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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