the importance of solving global...

“Reducing inequality within and between countries is a UN Sustainable Development Goal (number 10), why is reducing inequality so important?”

The Importance of Solving Global Inequality

Garry Piepenbrock (JMG E-Block)

The United Nations has not only placed a Sustainable Development Goal of reducing inter- and intra-national inequality,1 but it has offered a compelling argument as to why reducing inequality is so important:

“Inequality threatens long-term social and economic development, harms poverty reduction and destroys people’s sense of fulfilment & self-worth.

This, in turn, can breed crime, disease and environmental degradation. Most importantly, we cannot achieve sustainable development

and make the planet better for all if people are excluded from opportunities, services, and the chance for a better life.”2

In addition to describing the importance of global inequality, I will also explore its causes, consequences and potential solutions from legal, political and economic perspectives.3

Figure 1: Inequality as shown by the slums in Lagos, Nigeria4

1 https://www.un.org/sustainabledevelopment/inequality/ 2 “UN Sustainable Development Goal Number 10: Reducing Inequalities, Why it Matters.” https://www.un.org/sustainabledevelopment/wp-content/uploads/2018/01/16-00055j_Why-it-Matters_Goal10_Equality_new-icon.pdf 3 I will also build from my recent 2018 Lower Boy Economics Prize Essay on “Global Inequality”. 4 Piepenbrock, G., “Lagos: A city of hope or despair?” ABH’s Geography class, (Lent 2018).

Garry Piepenbrock (JMG E-Block) • 2018 Eton College Lower Boy Geography Prize Essay

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Inequalities based on Discrimination and Income

“Inequalities based on income, sex, age, disability, race, class, ethnicity, religion and opportunity continue to persist across the world, within and among countries.”5

I note that the majority of inequalities cited by the UN specifically are forms of discrimination (e.g. sex, age, disability, sexual orientation, race, class, ethnicity, religion and opportunity). These are best addressed by democracies with progressive legal systems, with laws suppressing such discrimination. Inequalities based on income however, are a function both of these discriminations, as well as of national and international economic systems. In this brief exploration, I will concentrate primarily on this latter inequality, and on how UN goals 1 (No Poverty), 8 (Economic Growth) and 10 (Reduced Inequalities) interact as shown in Figure 2 below.

Figure 2: Interactions of Key UN Sustainable Development Goals As Geography is an inter-disciplinary subject, I will bring other academic disciplines to bear on this discussion, including the related disciplines of Economics, Politics and Ecosystems science.

5 UN Sustainable Development Goal Number 10: Reducing Inequalities, Why it Matters.” https://www.un.org/sustainabledevelopment/wp-content/uploads/2018/01/16-00055j_Why-it-Matters_Goal10_Equality_new-icon.pdf


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Inequalities based on Income and Economic Inequality Although economics has mostly focused on issues of efficiency in the creation of wealth, rising global inequality has forced it to more seriously address issues of equity in the distribution of wealth. Great economists from Adam Smith to Karl Marx, representing both the economic/political Right and Left, have wrestled with the problem of inequality:

“Wherever there is great property there is great inequality.”6

“Society is more and more splitting up into two great hostile camps — bourgeoisie and proletariat.”7

Figure 3: Inequality viewed from the Left and the Right

The economics profession has begun to recognise the importance and seriousness of global inequality8 by recently granting the Nobel prize in 2015 to Sir Angus Deaton for his work on inequality:

“It can be bad if the winners try to stop others from following them, pulling up the ladders behind them.”9

Contemporary economists like Thomas Piketty, recognising the dangers of inequality, have identified causes and offered solutions to this problem:

“You need some inequality to grow...

but extreme can be harmful to growth because it reduces mobility and can lead to political capture of our democratic institutions.”10

6 Smith, A. The Wealth of Nations (1776). 7 Marx, K., and Engels, F., The Communist Manifesto (1848). The bourgeoisie are the owners of capital and the proletariat are the workers. 8 Other economists (e.g. Piepenbrock, T. (2009) and Piketty, T. (2014)) argue that slowing output growth rates or “secular stagnation”, cause or worsen global inequality. 9 Deaton, A., The Great Escape: Health, Wealth and the Origins of Inequality, 2013. 10 Piketty, T., Capital in the 21st Century (2014).


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Empirical Evidence of Economic Inequality Figure 4 below shows that global inequality has generally been increasing over the past 200 years.11 While inequality has been slowly increasing, the rate of this increase (i.e. the slope of the curve) has been decreasing. This slowing in the growth of inequality, can be argued to be due mostly to growth of the middle classes in China and India.

Figure 4: Historical increase in Global Inequality

“While income inequality between countries may have been reduced,

inequality within countries has risen. On average, income inequality increased by 11 per cent

in developing countries between 1990 and 2010”12 Figure 5 below13 shows that countries with the highest inequality (in dark red) are developing countries in South America (e.g. Brazil) and Africa (e.g. South Africa), while those with the lowest inequality (in dark green) are in coordinated market economies (e.g. Europe and Japan).

Figure 5: International income inequality comparison

11 Milanovic, B., (2009). (https://en.wikipedia.org/wiki/Gini_coefficient). A Gini index of 0% equals max. equality, while an index of 100% equals max. inequality. 12 https://www.un.org/sustainabledevelopment/inequality/ 13 https://en.wikipedia.org/wiki/Gini_coefficient.


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Causes of Global Economic Inequality Piketty has shown that for much of the past 2,000 years, capital has grown faster than output. One exception occurred in the middle half of the 20th century (shown in green in Figure 6 below).14

Figure 6: Growth of Capital vs Growth of Output

“The period from about 1914 to the 1970s was an historical outlier

in which both income inequality and the stock of wealth fell dramatically. Two world wars, the Depression and high taxes

pushed down the return on wealth in the 20th century, while rapid productivity and population rises pushed up growth.”15

Piketty then argues that increasing inequality occurs when the growth rate of capital (r) exceeds the growth rate of output (g). Consequences of Global Economic Inequality One of the consequences of inequality is economic stagnation and debt.16 Economists from Marx to Keynes have worried about excess capital being saved by the wealthy rather than spent.

“The most dangerous imbalance is in the distribution of wealth and income.

If too much of the income created by capitalism flows to people who are already rich and likely to save rather than spend,

then crises of under-consumption become almost inevitable. The only way to avert such crises is to recycle excess incomes from rich savers

to poorer consumers via a build-up of debt.”17

14 During this period, output growth exceeded capital growth. In this situation, “a rising tide lifts all boats”, meaning that rich and poor all benefited, especially the poor. 15 The Economist, “A Modern Marx”, 3 May 2014. 16 In addition to the obvious consequences of social unrest and potential populist revolution. 17 Kaletsky, A., “Karl Marx was right – at least about one thing,” 11 July 2014.


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Limits to Growth and Sustainable Development Viewing humanity as a species within its physical-economic ecosystem having a finite “carrying capacity”, social scientists have long-predicted humanity’s limits to growth in both population and wealth.18

“There is growing consensus that economic growth is not sufficient to reduce poverty.”19

As shown in Figure 7 below left, if people did not adopt sustainable strategies, there would be significant collapse of human population and industrial output (i.e. wealth) in the second half of the 21st century. A number of economists over time20 predicted that the growing inequality in capitalism could lead to its collapse.21

Figure 7: Status Quo (left) and Sustainable (right) Scenarios22 However, if we adopted sustainable strategies, growth would be sustainable without such collapse (as shown Figure 7 above right). This analysis demonstrates however that UN Goal 8 (economic growth) is therefore difficult to achieve over the long run, even when adopting sustainable strategies. Therefore, the focus must shift from wealth creation (UN Goal 8), to wealth distribution or economic equality (UN Goal 10).

“Anyone who believes that exponential growth can continue forever in a finite world is either a madman or an economist.”23

18 Social scientists at MIT who have used nonlinear dynamic mathematical models (called “system dynamics”) to capture limits to growth in human ecosystems include: Forrester, J., (1971), Meadows, D., et al. (1972, 1992, 2004), Piepenbrock, T. (2009), Randers, J., (2012). 19 https://www.un.org/sustainabledevelopment/inequality/ 20 For example: Marx, K., Capital (Das Kapital) (1867); Schumpeter, J., Capitalism, Socialism and Democracy (1942); Piketty, T., Capital in the 21st Century (2014). 21 As I have tried to demonstrate in Piepenbrock, G, “Globalisation and Populism” (2017), globalisation can lead to Inequality, which leads to populism, which can lead to more inequality. Donald Trump took advantage of this dynamic to gain power in the US, which I have also tried to demonstrate in Piepenbrock, G, “Trumponomics” (2017). 22 Source: Meadows, D., et al. (1972, 1992, 2004), adapted by Piepenbrock, T. (2009). 23 Economist, Kenneth Boulding.


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Political Solutions

“The history of the distribution of wealth has always been deeply political, and it cannot be reduced to purely economic mechanisms.”24

The first solution is political: ensure functioning democracies having free/fair elections, supported by a just/transparent judicial system, which suppresses corruption and discrimination. The second solution would be to adopt a form of market economy that values social cohesion, mobility and equality, i.e. coordinated market economies over liberal market economies, as shown in Figure 8 below.

Figure 8: Varieties of Capitalism25 Economic Solutions There are two main economic solutions to solve rising global inequality, which can either be approached from a top-down or bottom-up perspective. The first economic solution is a top-down approach, which is to make the rich poorer by taxing the rich.26 Assuming that the cause of inequality is when the rate of return on capital (r) exceeds the growth rate of output (g), then the solution is to tax capital, and not income. The second solution is a bottom-up approach, which is to make the poor richer for example by forgiving their debt or by raising minimum wage:

“Increases in the minimum wage generally lead to only slight declines in employment as well as to solid rises in income for those on lower salaries.”27

24 Piketty, T., (2014). 25 This diagram is adapted from my interpretation of Varieties of Capitalism as discussed in my essay on “Trumponomics” for the Eton Lower Boy Economics prize in Lent Half 2017. 26 This approach is common in coordinated market economies (e.g. France and Germany), but has become less favourable in liberal market economies like the US. 27 The Economist 2017, “Promising the Moon”, 12 October 2017.

Top-Down

Bottom-Up

“Left” Communism

“Right” Capitalism

Anarchy

Fascism

Socialism Liberal

Market Economies

Coordinated Market Economies

e.g. US, UK

e.g. Germany, France, Japan


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Summary and Conclusion As I have tried to briefly show, inequality is one of the important economic and political problems facing the 21st century. A comprehensive solution therefore should consider both the political as well as related economic spheres, as shown in Figure 9.

Figure 9: Comprehensive Solution I conclude by quoting economists (separated by nearly 250 years) representing both the liberal market economies of the Right (e.g. UK) and the coordinated market economies of the Left (e.g. France), Adam Smith and Thomas Piketty who expressed their wisdom about inequality:

“This disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least, to neglect persons of poor and mean condition, is

the great universal cause of the corruption of our moral sentiments.”28

“We want capitalism and market forces to be the slave of democracy rather than the opposite.”29

Reducing inequality is important because it helps both decreasing negative aspects of society (e.g. poverty, crime, disease and environmental degradation) as well as increasing positive aspects of society (e.g. providing dignity, self-worth, fulfilment) which results in a better life for all. The means to achieve such laudable goals includes the creation of robust democracies with fair legal systems, which do not tolerate various forms of discrimination (e.g. sex, age, disability, sexual orientation, race, class, ethnicity, religion and opportunity), along with the creation of economic systems and policies which focus as much on fair wealth distribution as on wealth creation.

28 Smith, A. (1759). 29 Piketty, T., (2014).

Functioning democracy?

Liberal market economy?

Enable fair elections & abolish corruption

Yes

No

Yes

No

Coordinated market economy

Tax capital, raise min. wage

Global Economic Equality


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Acknowledgements I would like to thank my parents for their many conversations on this topic during my time at Eton, for their recommended reading, and for reviewing and critiquing my drafts of this essay, especially over the 2018 Eton Easter break. I would also like to thank Mr Paul Bird, Head of Economics and Politics at Eton College for his helpful comments on my Eton Lower Boy Economics Prize Essay on Global Inequality, for which I was fortunate to have been Highly Commended. I would also like to thank Mike Wargel, Director of Finance and Business Operations at FLEXE30 for his support and encouragement of my studies at Eton, and for recommending various articles for me to consider for this paper. I would also like to thank the Balliol Society Educational Trust for their generous support of my studies at Eton. Word Count 1,499 words including quotations, but excluding footnotes, acknowledgements, bibliography and appendices.

30 https://www.flexe.com


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Bibliography / References Boucoyannis, D., “The Equalizing Hand: Why Adam Smith Thought the Market Should Produce Wealth Without Steep Inequality,” Perspectives on Politics, Vol. 11, Issue 4, pp. 1051-1070, December 2013. Boucoyannis, D., “Contrary to popular and academic belief, Adam Smith did not accept inequality as a necessary trade-off for a more prosperous economy.” http://blogs.lse.ac.uk/politicsandpolicy/adam-smith-and-inequality/ Boulding, K. Energy reorganization act of 1973: Hearings, Ninety-third Congress, first session, on H.R. 11510. p. 248. Deaton, A., The Great Escape: Health, Wealth and the Origins of Inequality, Princeton University Press, 2013. https://www.goodreads.com/author/quotes/170788.Angus_Deaton The Economist, “Min to the max: A £10 minimum wage is not the best way to help low earners,” 27 April 2017, https://www.economist.com/news/britain/21721433-middle-income-households-would-benefit-more-poorest-and-jobs-would-be-risk-10 The Economist, “Promising the Moon: South Korea tries to boost the economy by hiking the minimum wage,” 12 October 2017, https://www.economist.com/news/asia/21730187-70-median-wage-it-going-too-far-south-korea-tries-boost-economy-hiking The Economist, “Taxing the Rich”, 12 October 2017, https://www.economist.com/blogs/buttonwood/2017/10/tackling-inequality The Economist, “A Modern Marx: Thomas Piketty’s blockbuster book is a great piece of scholarship, but a poor guide to policy”, 3 May 2014, https://www.economist.com/news/leaders/21601512-thomas-pikettys-blockbuster-book-great-piece-scholarship-poor-guide-policy The Economist, “Thomas Piketty’s ‘Capital’ summarised in four paragraphs”, 5 May 2014, https://www.economist.com/blogs/economist-explains/2014/05/economist-explains Forrester, J., World Dynamics, Pegasus Communications,1971. Hall, P. and Soskice, D., Varieties of Capitalism: The Institutional Foundations of Comparative Advantage, (2001). Kaletsky, A., “Karl Marx was right – at least about one thing,” 11 July 2014.


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http://blogs.reuters.com/anatole-kaletsky/2014/07/11/karl-marx-was-right-at-least-about-one-thing/ Marx, K., and Engels, F., The Communist Manifesto, 1848. Marx, K., A Contribution to the Critique of Political Economy, 1859. Marx, K., Capital: Critique of Political Economy (Das Kapital), 1867. Meadows, D., Meadows, D., Randers, J., and Behrens III, W., The Limits to Growth, 1972. Meadows, D., Meadows, D., and Randers, J., Beyond The Limits to Growth, 1992. Meadows, D., Randers, J., and Meadows, D., The Limits to Growth: The 30-year Update, 2004. Milanovic, Branko (2009). "Global Inequality and the Global Inequality Extraction Ratio", World Bank. Piepenbrock, G. “Trumponomics”, Eton College lower boy Economics Prize essay (Lent 2017), highly commended. Piepenbrock, G. “Globalisation and Populism”, Eton College lower boy Politics Prize essay (Michaelmas 2017), runner-up. Piepenbrock, G. “Global Inequality”, Eton College lower boy Economics Prize essay (Lent 2018), highly commended. Piepenbrock, G. “Lagos: A city of hope or despair?”, ABH’s Geography class, (Lent 2018). Piepenbrock, T. F., “Toward a Theory of the Evolution of Business Ecosystems,” PhD dissertation, Massachusetts Institute of Technology, 1,325 pages (2009). Piketty, T., Capital in the Twenty-First Century, 2014. http://piketty.pse.ens.fr/files/capital21c/en/Piketty2014FiguresTablesLinks.pdf http://www.hup.harvard.edu/catalog.php?isbn=9780674430006 Randers, J., 2052: A Global Forecast for the Next Forty Years, 2012. Rasmussen, D., “The Problem with Inequality according to Adam Smith,” 9 June 2016. https://www.theatlantic.com/business/archive/2016/06/the-problem-with-inequality-according-to-adam-smith/486071/


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Sagar, P. “The Real Adam Smith,” (2017). https://aeon.co/essays/we-should-look-closely-at-what-adam-smith-actually-believed Schumpeter, J., Capitalism, Socialism and Democracy, 1942. Stiglitz, J., The Price of Inequality: how today’s divided society endangers our future, (2012). Smith, A., The Theory of Moral Sentiments (1759). Smith, A., The Wealth of Nations (1776). http://www.un.org/sustainabledevelopment/sustainable-development-goals/ http://www.un.org/sustainabledevelopment/poverty/ http://www.un.org/sustainabledevelopment/economic-growth/ http://www.un.org/sustainabledevelopment/inequality/ https://inequality.org http://www.socialstudieshelp.com/Eco_Income_Inequality.htm https://en.wikipedia.org/wiki/Gini_coefficient https://en.wikipedia.org/wiki/Lorenz_curve https://www.tutor2u.net/sociology/blog/inequality https://www.tutor2u.net/economics/topics/inequality https://www.tutor2u.net/economics/topics/income-inequality https://www.tutor2u.net/economics/reference/ultimatum-game


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Appendix A: Supplemental Concepts

Table A1: Economic and Political Typology source: Piepenbrock G. (Lent 2017)

31 Piepenbrock, T. (2009). 32 Hall, P. and Soskice, D. (2001). 33 Friedman, M. (1978). 34 The long-established international convention of the “Left” denoted by the colour red and the “Right” denoted by the colour blue was inadvertently reversed in US politics in the 2000 Presidential election. See Wikipedia: “Red States and Blue States.” 35 Based on data in Wikipedia: “Historical rankings of Presidents of the United States”. 36 Based on data in Wikipedia: “Historical rankings of Prime Ministers of the United Kingdom”.

The “Left” The “Right” Focus Collectivist (we/us) Individualist (I/me)

Interactions Cooperative Competitive

Time Horizons Longer-term Shorter-term

Strategies31 Stability Growth

Ideologies Socialism (& Communism) Capitalism

Economic Inequality Low High

Market Economy32 Coordinated Liberal

Factor of Production Focus Labour Capital

Economic Sector Emphasis33 Production (Supply) is concentrated

Consumption (Demand) Is diffused

Focus of Growth Quality (e.g. Productivity) Quantity (e.g. GDP)

Locus of Power Top-down Bottom-up

Size of Government Big Small

Social Dimension Liberal (or Progressive) Conservative

Economic Dimension Social Liberal (Neo-Liberal)

Economic thought-leaders

Karl Marx (1818-1883) John M. Keynes (1883-1946)

Paul Krugman (1953-)

Adam Smith (1723-1790) Friedrich Hayek (1899-1992) Milton Friedman (1912-2006)

US Political Parties34 Democrats (blue) Republicans (red) Key US Presidents35 F.D. Roosevelt (“New Deal”) R. Reagan (“Supply-side”) UK Political Parties Labour (red) Tories / Conservatives (blue)

Key UK Prime Ministers36 C. Attlee (“welfare state”) M. Thatcher (“Supply-side”) Fiscal Policies Tax and spend

(deficits are o.k.) Low tax, low spend

(deficits are not o.k.) Fiscal (Tax) Policies Benefit the Poor

(“pump-up”) Benefit the Rich (“trickle-down”)

Monetary Policies Active Passive Trade Policies Protectionist,

Multi-lateral Free-trade, Bi-lateral

Government Regulation High Low


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The two forces of capitalism and democracy, as represented by their associated ideas of globalisation and populism interact in complex ways over time, as shown in the causal loop diagram37 in Figure A2 below.

Figure A1: Causal Loops38 Linking Globalisation to Populism source: Piepenbrock G. (Michaelmas 2017)

37 A positive sign at the end of an arrow means that the variables connected by the arrow move in the same direction (e.g. if Globalisation goes up, then Differentiated Jobs/Wages in the Developed World also goes up). A negative sign at the end of an arrow means that the variables connected by the arrow move in the opposite direction (e.g. if Globalisation goes up, then Commodity Jobs/Wages in the Developed World goes down). Balancing loops have an odd number of negative signs of the arrows in a loop. Balancing loops de-amplify growth or decay. Reinforcing loops have an even number of negative signs of the arrows in a loop. Reinforcing loops amplify growth or decay. 38 Loop B1 from Globalisation to Commodity Jobs/Wages to Populism to Laws Protecting Jobs/Wages and back to Globalisation is a balancing loop. Loop R1 from Globalisation to Differentiated Jobs/Wages to Populism to Laws Protecting Jobs/Wages and back to Globalisation is a reinforcing loop. Loop R2 from Populism to Laws Protecting Jobs/Wages to Global GDP Growth to Commodity Jobs/Wages & back to Populism is a reinforcing loop. Loop B2 from Commodity Jobs/Wages to Retrain Workers to Global GDP Growth and back to Commodity Jobs/Wages is a balancing loop. Loop R3 from Globalisation to Commodity Jobs/Wages to Retrain Workers and back to Globalisation is a reinforcing loop.


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Appendix B: Supplemental Quotations The United Nations “The international community has made significant strides towards lifting people out of poverty. The most vulnerable nations – the least developed countries, the landlocked developing countries and the small island developing states – continue to make inroads into poverty reduction. However, inequality still persists and large disparities remain in access to health and education services and other assets. Additionally, while income inequality between countries may have been reduced, inequality within countries has risen. There is growing consensus that economic growth is not sufficient to reduce poverty if it is not inclusive and if it does not involve the three dimensions of sustainable development – economic, social and environmental. To reduce inequality, policies should be universal in principle paying attention to the needs of disadvantaged and marginalized populations. Facts and Figures • On average—and taking into account population size—income inequality

increased by 11 per cent in developing countries between 1990 and 2010

• A significant majority of households in developing countries—more than 75 per cent of the population—are living today in societies where income is more unequally distributed than it was in the 1990s

• Evidence shows that, beyond a certain threshold, inequality harms growth and poverty reduction, the quality of relations in the public and political spheres and individuals’ sense of fulfilment and self-worth

• There is nothing inevitable about growing income inequality; several countries have managed to contain or reduce income inequality while achieving strong growth performance

• Income inequality cannot be effectively tackled unless the underlying inequality of opportunities is addressed

• In a global survey conducted by UN Development Programme, policy makers from around the world acknowledged that inequality in their countries is generally high and potentially a threat to long-term social and economic development

• Evidence from developing countries shows that children in the poorest 20 per cent of the populations are still up to three times more likely to die before their fifth birthday than children in the richest quintiles

• Social protection has been significantly extended globally, yet persons with disabilities are up to five times more likely than average to incur catastrophic health expenditures

• Despite overall declines in maternal mortality in the majority of developing countries, women in rural areas are still up to three times more likely to


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die while giving birth than women living in urban centres Goal 10 Targets • By 2030, progressively achieve and sustain income growth of the bottom 40

per cent of the population at a rate higher than the national average • By 2030, empower and promote the social, economic and political

inclusion of all, irrespective of age, sex, disability, race, ethnicity, origin, religion or economic or other status

• Ensure equal opportunity and reduce inequalities of outcome, including by eliminating discriminatory laws, policies and practices and promoting appropriate legislation, policies and action in this regard

• Adopt policies, especially fiscal, wage and social protection policies, and progressively achieve greater equality

• Improve the regulation and monitoring of global financial markets and institutions and strengthen the implementation of such regulations

• Ensure enhanced representation and voice for developing countries in decision-making in global international economic and financial institutions in order to deliver more effective, credible, accountable and legitimate institutions

• Facilitate orderly, safe, regular and responsible migration and mobility of people, including through the implementation of planned and well-managed migration policies

• Implement the principle of special and differential treatment for developing countries, in particular least developed countries, in accordance with World Trade Organization agreements

• Encourage official development assistance and financial flows, including foreign direct investment, to States where the need is greatest, in particular least developed countries, African countries, small island developing States and landlocked developing countries, in accordance with their national plans and programmes

• By 2030, reduce to less than 3 per cent the transaction costs of migrant remittances and eliminate remittance corridors with costs higher than 5 per cent

Why it Matters? Inequalities based on income, sex, age, disability, sexual orientation, race, class, ethnicity, religion and opportunity continue to persist across the world, within and among countries. Inequality threatens long-term social and economic development, harms poverty reduction and destroys people’s sense of fulfilment and self-worth. This, in turn, can breed crime, disease and environmental degradation. Most importantly, we cannot achieve sustainable development and make the planet better for all if people are excluded from opportunities, services, and the chance for a better life.”


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The Economist “The report details how income tax progressivity in advanced economies declined in the 1980s and 1990s and that the tax system has done little to reduce inequality in recent years”39 “(In the UK?) the minimum wage will continue rising, from about 55% of median earnings at the moment to 60% in 2020. Official forecasts suggest that this could ultimately cost around 100,000 jobs.”40 Adam Smith https://www.goodreads.com/author/quotes/14424.Adam_Smith “This disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least, to neglect persons of poor and mean condition, is, the great and most universal cause of the corruption of our moral sentiments.” “Wherever there is great property there is great inequality. For one very rich man there must be at least five hundred poor, and the affluence of the few supposes the indigence of the many. The affluence of the rich excites the indignation of the poor, who are often both driven by want, and prompted by envy, to invade his possessions.” Angus Deaton “The evolution of income can be looked at from three different perspectives: growth, poverty, and inequality. Growth is about the average and how it changes, poverty about the bottom, and inequality about how widely incomes are spread across families or people.”41 Joseph Stiglitz “Much of America’s inequality is the result of market distortions, with incentives directed not at creating new wealth but at taking it from others.” Thomas Piketty https://www.goodreads.com/author/quotes/795282.Thomas_Piketty “My premise is not to tax to destroy the wealth of the wealthy; it's to increase the wealth of the bottom and the middle class.”42 “A capital tax is the most appropriate response to the inequality r > g.”43

39 The Economist 2017, “Taxing the Rich”, 12 October 2017. 40 The Economist 2017, “Min to the max”, 27 April 2017. 41 Deaton, A., The Great Escape: Health, Wealth and the Origins of Inequality, 2013. 42 Piketty, T., (2014). 43 Piketty, T., (2014).


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“When the rate of return on capital exceeds the rate of growth of output and income, as it did in the 19th century and seems quite likely to do again in the 21st, capitalism automatically generates unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based.” “For millions of people, “wealth” amounts to little more than a few weeks’ wages in a checking account or low-interest savings account, a car, and a few pieces of furniture. The inescapable reality is this: wealth is so concentrated that a large segment of society is virtually unaware of its existence, so that some people imagine that it belongs to surreal or mysterious entities. That is why it is so essential to study capital and its distribution in a methodical, systematic way.” “this fear of growing to resemble Europe was part of the reason why the United States in 1910–1920 pioneered a very progressive estate tax on large fortunes, which were deemed to be incompatible with US values, as well as a progressive income tax on incomes thought to be excessive. Perceptions of inequality, redistribution, and national identity changed a great deal over the course of the twentieth century, to put it mildly.” “the decrease in the top marginal income tax rate led to an explosion of very high incomes, which then increased the political influence of the beneficiaries of the change in the tax laws, who had an interest in keeping top tax rates low or even decreasing them further and who could use their windfall to finance political parties, pressure groups, and think tanks.” “In contrast to what many people in Britain and the United States believe, the true figures on growth (as best one can judge from official national accounts data) show that Britain and the United States have not grown any more rapidly since 1980 than Germany, France, Japan, Denmark, or Sweden. In other words, the reduction of top marginal income tax rates and the rise of top incomes do not seem to have stimulated productivity (contrary to the predictions of supply-side theory) or at any rate did not stimulate productivity enough to be statistically detectable at the macro level.” “All signs are that the Scandinavian countries, where wage inequality is more moderate than elsewhere, owe this result in large part to the fact that their educational system is relatively egalitarian and inclusive.” “None of the Asian countries that have moved closer to the developed countries of the West in recent years has benefited from large foreign investments, whether it be Japan, South Korea, or Taiwan and more recently China. In essence, all of these countries themselves financed the necessary investments in physical capital and, even more, in human capital, which the latest research holds to be the key to long-term growth.35 Conversely,


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countries owned by other countries, whether in the colonial period or in Africa today, have been less successful, most notably because they have tended to specialize in areas without much prospect of future development and because they have been subject to chronic political instability.” Deborah Boucoyannis “That the market economy inevitably leads to inequality is widely accepted today, with disagreement confined to the desirability of redistributive action, its extent, and the role of government in the process. The canonical text of liberal political economy, Adam Smith's Wealth of Nations, is assumed even in the most progressive interpretations to accept inequality, rationalized as the inevitable trade-off for increasing prosperity compared to less developed but more equal economies. I argue instead that Smith's system, if fully implemented, would not allow steep inequalities to arise. In Smith, profits should be low and labor wages high, legislation in favor of the worker is “always just and equitable,” land should be distributed widely and evenly, inheritance laws liberalized, taxation can be high if it is equitable, and the science of the legislator is necessary to put the system in motion and keep it aligned. Market economies are made in Smith's system. Political theorists and economists have highlighted some of these points, but the counterfactual “what would the distribution of wealth be if all the building blocks were ever in place?” has not been posed. Doing so encourages us to question why steep inequality is accepted as a fact, instead of a pathology that the market economy was not supposed to generate in the first place.” Paul Sagar (on Adam Smith’s desire to break-up power in monopolies) “The context of Smith’s intervention in The Wealth of Nations was what he called ‘the mercantile system’. By this Smith meant the network of monopolies that characterised the economic affairs of early modern Europe. Under such arrangements, private companies lobbied governments for the right to operate exclusive trade routes, or to be the only importers or exporters of goods, while closed guilds controlled the flow of products and employment within domestic markets. As a result, Smith argued, ordinary people were forced to accept inflated prices for shoddy goods, and their employment was at the mercy of cabals of bosses. Smith saw this as a monstrous affront to liberty, and a pernicious restriction on the capacity of each nation to increase its collective wealth. Yet the mercantile system benefited the merchant elites, who had worked hard to keep it in place. Smith pulled no punches in his assessment of the bosses as working against the interests of the public. As he put it in The Wealth of Nations: ‘People of the same trade seldom meet together, even for merriment and diversion but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.’”

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