Among the reasons for this increasing income and wealth inequality are the effects of technology on the job market favouring skill-based professions over blue-collar work, globalisation that saw the outsourcing of work overseas, the erosion of union power, particularly after the Reagan era, stagnation of minimum wage, the lag of wage rates behind productivity increases, the astronomical rise in the compensation of chief executives and the structure of tax relief and incidence policies.
That
is a weighty list of reasons for the rise of inequality, and valuable
if we have in mind to reduce inequality. But I had to quit reading when I
got to that paragraph, so I could write.
I have to say I've had a lucky streak lately, coming across several authors who think as I think: John Hotson, John McMurtry, William Hixson, Lawrence E. Mitchell, and Michael Lim Mah-Hui. And these are guys that know what they're talking about, not mere hobbyists like me.
I respect what they say and I want to read more. And where I disagree with them it is no doubt because I'm the amateur and they are pros. But it looks to me like Michael Lim left something important off his list of the reasons for inequality: debt.
Maybe it is there, on the next page. But people tell me debt doesn't cause inequality; inequality causes debt. They think I have it backwards.
I think they have it backwards. Debt,
by means of the interest payments, is a device or a mechanism that
moves
income into the financial sector. Some of that money, probably most of
it, never comes out again (or not for years and years) unless it comes
out as a loan. In other words, money only comes out of finance if it is
going to be returned to finance with interest. Money only comes out of
finance to bring more money into finance. What goes into finance stays in finance!
People say inequality is the cause of debt. But inequality is not a mechanism. It is a measure of monetary imbalance. It is an indicator we can use to see that there is indeed a problem.
But an indicator is not always a cause. Very often it is
a result. The interest on debt, on the other hand, moves money out of
the pockets of working people and out of the transaction accounts of productive
("nonfinancial") businesses, and into the steely cold vaults of the financial
sector. The payment of interest is a cause of inequality, and it moves significant amounts of money into finance every year.
Mechanisms that move income are central to the problem of growing inequality. Debt is such a mechanism.
I must also emphasize that paying interest reduces the disposable income available for spending. This reduces aggregate demand, reduces employment and reduces economic growth. The short version: a growing debt not only contributes to inequality by shifting monetary balances, but also by slowing economic growth and income growth, which -- because of inequality -- hurts the rich much less than it hurts the rest of us.
No comments:
Post a Comment