Equality is the economic and political buzzword of the moment. Of course it is — inequality is demonstrably causing severe social and economic problems. Politicians figure that promising equality will get them more votes. It’s straight-line political thinking; we have a problem with wealth equality so let’s talk up policies aimed at redistributing wealth and thus promise more equality. The trouble is it’s a vote-loser. A politician promising a more equal society is simply playing to the gallery, as no amount of redistributive tinkering will generate real change.
People think they believe in equality but they actually believe in fairness, and when policies aimed at creating equality also seem unfair to them they vote against them. This is because equality as a political rallying call is a false positive.
Human beings are hardwired for competition, evolution, the survival of the fittest, ambition in business, success in sport, and we understand on a base level that people who perform better deserve to be better rewarded. Sure, we agree that two people doing the same job for the same amount of hours regardless of gender or creed should be paid the same wage, but that’s it. Beyond that we don’t believe in equality.
Let’s call those two people doing the same job Bob and Jill. They wash cars for a living and both get £8.00 an hour and work seven hours a day. So far so good. However, Jill turns out one more washed and valeted car a day than Bob, five days a week and that equates to a greater monthly output of 20 cars a month. You have an extra £5 per hour to distribute and you can split it any way you want. Do you give them both £2.50 an hour pay rise or do you give more to Jill? I first pondered this simplistic question on equality as an economic student 30 years ago and to this day I haven’t found a single person who wouldn’t reward Jill more highly than Bob. We don’t want equality, we want fairness, and that is a key understanding that many policy-makers fail to grasp.
People don’t mind wealth gaps. They don’t mind not having too much themselves and looking at others and seeing someone with a nice house and an expensive car – as long as its fair. For equality not to be unfair, they need to be able say to themselves that they have the potential to be that successful, or that person has done something they couldn’t, to earn that wealth. In the same situation when we perceive that the wealth has come from privilege, or inheritance combined with a lack of talent and also that we were not given a chance to better ourselves due to poverty traps, poor education, or lack of opportunity, that’s when we mind the gap. That’s when we perceive unfairness.
Harmful inequality and poverty can’t be addressed without a radical rethink of the whole economic system which is set up to exacerbate inequality. Think about how money is created. Governments create about three per cent of new money and 97 per cent of money is created when banks lend money off their balance sheet. Banks don’t have the money they lend sitting in an account, they simultaneously create a debit and a credit on their balance sheet (thus creating money out of thin air) and charge the borrower interest on the money loaned. When the loan is paid back they simply delete the new money created to facilitate the loan and pocket the interest as profit. They literally have a licence to print money, but still went bust, and this creates inequality.
Those with wealth borrow money to invest in assets, to start businesses, to buy second houses to rent to poorer people for profit etc. Poorer people can’t get on the property ladder because wealthier people are getting buy-to-let mortgages and bidding more for houses, making them less affordable and creating a new social cast of property slaves — people who work only to service rents.
Those without money also have to borrow but instead of investing in assets they borrow to pay for food for their families, to pay the rent, for transport to work. They shop in the same supermarkets (mostly) but the cost of living for the poor comes with an interest rate, and the poorer they are the higher the interest rate.
Imagine if your weekly food budget was bought at 290 per cent APR. Imagine you work two jobs at minimum wage and still can’t service the rent or interest on the money you borrowed just to get by. Hard-working with kids to feed, tired and worried about your children’s prospects. You want to start a business, become self-employed and do some good, give your family a future, but you are trapped in work poverty, housing slavery and a debt trap and none of it is your fault.
It’s not the gap you mind but the fact that you were not offered the opportunity, you are a victim of the system. So politicians tinker with the system to try to distribute wealth more fairly. They increase inheritance tax, increase taxation on higher earners and raise the lower tax threshold and that narrows the gap, for a time, but it doesn’t address the unfairness of the system and so eventually the poor don’t even vote because equality is an empty promise. The Conservatives have raised the tax threshold putting more money in people’s pockets, but having a higher and higher percentage of the population exempt from tax means less money for services, and who relies most on services? Poorer people. Such policies give with one hand and take with the other.
So when I say, let’s have the Government issue loans creating all new money, so that the people gain from interest rate profits and not private banks; when I suggest quantitative easing to offer cash bonuses to low-income families when inequality reaches unsustainable levels; when I suggest restricting the economic system so it has built-in wealth distribution safeguards — everyone tells me why those ideas might not work, but no one points out that the current system 100 per cent isn’t working. All we get are platitudes about equality from politicians that don’t understand economics and the systemic causes of inequality.