Equality: A fourth ‘E’ for the Crash Course?

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  • Sat, Jun 18, 2011 - 08:44pm

    #1
    tomshackell

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    Equality: A fourth ‘E’ for the Crash Course?

Hello,

 

I’ve written a blog post on why I think ‘Equality’ is a fourth ‘E’ for the crash course 🙂 Here’s the link:

Equality: A fourth ‘E’ for the Crash Course?

It’s fairly long, but hopefully of interest to people.

Comments and feedback actively encouraged!

 

cheers

 

Tomsk

  • Sun, Jun 19, 2011 - 08:44am

    #2
    tomshackell

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    Here’s a little executive

Here’s a little executive summary:

My argument is that high levels of debt (government, corporate and personal) are not due to financial mismanagement or due to people “living beyond their means”. Rather I argue that the levels of debt are an almost inevitable consequence of the high levels of financial inequality. Since investments are always made at interest the debt will always grow exponentially.

The debt cannot be repaid in real terms no matter what austerity measures are introduced. The only way the debt can be repaid would be to correct the underlying financial inequality.

  • Sun, Jun 19, 2011 - 11:37am

    #3

    Damnthematrix

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    debts cannot be repaid

How can you say “The debt cannot be repaid in real terms” AND “The only way the debt can be repaid” in one paragraph?

The debts cannot indeed ever be repaid, because they always grow faster than he GDP due to interest.  The debt hockeystick must always be steeper than the one for economic growth.  That is the inevitable consequence of a debt based financial and monetary system.

“To correct the underlying financial inequality”, there is only one solution:  cancel all the debts, and start again with a brand new sustainable economy…….  Now THAT, the financial institutions would love! 😉

Mike

  • Sun, Jun 19, 2011 - 12:42pm

    #4
    tomshackell

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    I stand by my statement

I stand by my statement although I agree it’s a little confusing at first sight 🙂

Every debt can be repaid in financial terms, if you think creatively enough. For example, the government could print huge wads of cash and give it to all the poor people. They could then repay all their debts, in financial terms at least. This would also rebalance the financial inequality. This is a hyper-inflation scenario.

However, this wouldn’t be repaying the debt *in real terms*. All that’s happened is that the currency has been devalued so much the debt is worthless. It’s essentially just the same defaulting on the debt, only legally speaking the debt has been paid.

All this is talked about in more detail in the full article.

I entirely agree with you that ultimately the only answer is that the debt must be cancelled one way other another, and the financial institutions are not going to like it one bit 😉

  • Sun, Jun 19, 2011 - 12:55pm

    #5

    Aaron M

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    Fourth E

While I don’t think anyone would argue that a drastic economic gradient is a good thing, I would hesitate to say it’s what is causing excessive lending.

I suppose the argument could be made and well supported that the increase in inequality exacerbates the need to take on additional debt to improve ones’ financial wellbeing/social status, but it seems to me as if the debt came long after the inequality.

The robber barons were sharply more wealthy than the bottom social tier of their time, but the debt held steady until Keynsian economic policy took solid root after WWII. The money system literally uses debt to define the wealth or vigor of an economy, so it’s easy to see that the disparity in lifestyles exists autonomous of an economic policy.

To highlight this even further, we can examine the disparity of social standards in other economic systems; such as Communism in the U.S.S.R., or China, and we see indelibly that the population is always going to have a component that bears the burden of the societies labor. Fiscal equality is a good and noble goal – but too shallow of a gradient (such as was present in the U.S.S.R.) leaves little room for individual motivation/prosperity.

Either way, we need to strike a balance. Personally, I don’t see the need for a 4th E, but you raise good talking points.
Cheers,

Aaron

  • Sun, Jun 19, 2011 - 02:12pm

    #6
    doorwarrior

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    “To correct the underlying

“To correct the underlying financial inequality”, there is only one solution:  cancel all the debts, and start again with a brand new sustainable economy…….  Now THAT, the financial institutions would love! 😉

Great idea,  I would love it and I dont even have any debt.

Rich

  • Sun, Jun 19, 2011 - 02:32pm

    #7
    tomshackell

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    Indeed it is obviously more

Indeed it is obviously more of a talking point than an actual request to add an actual fourth ‘E’ 🙂

None the less I think the role of inequality is critical. As I describe in the full article. It is not so much that inequality is the cause of excessive debt, it is that it requires excessive debt. A society that has very high levels of financial inequality simply cannot function without also having very high levels of debt. I’m not so much arguing whether inequality came first or debt came first. Instead I’m arguing that this is in fact a socio-economic law: if you have high inequality you must also have high debt.

Now to my mind if this is true it has some radical consequences for how our policy makers need to respond to the current debt crisis. If we understand that the current distribution of wealth needs very high level of indebtedness then it means we cannot solve the crisis by austerity. The debt cannot be repaid without correcting the financial inequality, and any effort to do so will be entirely futile.

It would also have very important consequences for how we avoid being in this situation again in the future. 

  • Sun, Jun 19, 2011 - 03:06pm

    #8

    Aaron M

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    Thoughts

[quote]I’m not so much arguing whether inequality came first or debt came first. Instead I’m arguing that this is in fact a socio-economic law: if you have high inequality you must also have high debt.[/quote]

This I completely disagree with.
Generally, any statement that has “must”, “always”, “never” or other such absolutes are very hard to substantiate, and very easy to discredit.
It could be said that many ancient societies had absolutely no debt, and have a backbreaking disparity in wealth – Ancient Egypt comes to mind. In more contemporary terms we can look at nations that are relatively uniform in terms of wealth (Spain) and have enormous amounts of debt, or we could look from the other angle and talk about societies with great disparities in wealth and relatively low debt, like Russia.

I don’t mean to be harsh towards your concept, but I’d submit debt is autonomous of ideology, general wealth, cultural considerations and economic stuctures.

It’s a demand placed upon modern societies by the central banks, and will infect any and all who come in contact with it.
The central banks are, in essence, the disease – while societies with disparate wealth gradients are just one of the many host types.

Cheers,

Aaron 

  • Sun, Jun 19, 2011 - 03:51pm

    #9
    tomshackell

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    It is a must in the same

It is a ‘must’ in the same sense as Chris’s statement that our economy must grow to service our ever expanding money supply. 

To be more precise my statement would be that any society that has high enough levels of  financial inequality, and where the rich lend money as an investment, must have high levels of debt.

The argument for this is rather lengthy so rather than laying it out here, I refer you to the discussion in my article. 

 

 

  • Sun, Jun 19, 2011 - 04:27pm

    #10

    Aaron M

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    But…

I’ve just cited examples where it does not exist.

So, it’s not a “must”. You’re showing a relationship, but not a causual relationship – which, unless I’m misunderstanding, is your intent.
Because societies where the rich do not lend or rates are very low also suffer from inequality; the Saudi example comes to mind.

In short, no agreement.
Cheers,

Aaron

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