Martin Wolf on Inequality

by Dirk Ehnts, Econoblog101

The FT’s Martin Wolf had a good piece named ‘Why inequality is such a drag on our economies‘, summing up the problem in the following way:

The costs to society of rising inequality go further. To my mind, the greatest costs are the erosion of the republican ideal of shared citizenship.

As the US Supreme Court seeks to bend the constitution to the will of plutocrats, the peril is to the politically egalitarian premises of the republic. Enormous divergences in wealth and power have hollowed out republics before now. They could well do so in our age.

This connects nicely to the post on campaign finance from yesterday, and it also connects to an Adam Smith quote:

Civil government, so far as it is instituted for the security of property, is in reality instituted for the defence of the rich against the poor, or of those who have some property against those who have none at all. (book 5, chapter 1)

The effects of quantitative easing have been extremely unequal, with the gains going almost exclusively to the wealthiest of our societies. Unemployment, however, has not been tackled with the same speed. Fiscal policy, which can raise demand for labor, has not been used, in Europe the opposite policy was chosen – austerity. Since even macroeconomic textbooks say that in times of weak demand, a fall in government spending leads to less income the problems of our day are not purely economic. They are political (campaign finance, the role of the press, …) and institutional (the euro, tax competition, tax avoidance, …) and perhaps also philosophical (Do you really think that managers deserve such a high income compared to, say, teachers).

As Martin Wolf wrote, the egalitarian premises of the republic are now being dismantled, and there has not been a discussion in the papers whether we want to allow that. Most of the erosion of civil rights took place under the war against terror. This is not without precedent. Actually, the Roman Empire began its end like that, as the NY Times reported in 2006:

IN the autumn of 68 B.C. the world’s only military superpower was dealt a profound psychological blow by a daring terrorist attack on its very heart. Rome’s port at Ostia was set on fire, the consular war fleet destroyed, and two prominent senators, together with their bodyguards and staff, kidnapped.

The incident, dramatic though it was, has not attracted much attention from modern historians. But history is mutable. An event that was merely a footnote five years ago has now, in our post-9/11 world, assumed a fresh and ominous significance. For in the panicky aftermath of the attack, the Roman people made decisions that set them on the path to the destruction of their Constitution, their democracy and their liberty. One cannot help wondering if history is repeating itself.