We can all agree on one thing: No more bailouts for bankers
MUDDLED thinking is the enemy of sound judgement and sensible decision-making. Sadly, the current discussion about inequality is especially confused, with terms and concepts used loosely, making it impossible to conduct a sensible debate.
Those who claim to dislike inequality often don’t mean what they say – or at least, most of them don’t. Some, such as Thomas Piketty, the left-wing economist, genuinely wants to dramatically reduce the income and wealth gap between rich and poor, by slapping punitive 80 per cent marginal tax rates on high earners and wealth taxes on owners of even modest amounts of assets. But many of those who have jumped on the anti-inequality bandwagon wouldn’t go that far, and in many cases wouldn’t even really advocate using the tax system at all to hammer the better off. Instead, what such people often really mean when they rail against inequality is that unemployment is too high, that the poor are suffering, that social mobility is too low or that there are still too many poor countries – and they are right to be concerned about all of these things, and to try and rectify them.
But they shouldn’t describe these very real problems as “inequality” because tackling them may not actually reduce wealth and income disparities. One can have a very unequal society where the poor enjoy rising incomes, or a very equal society where the poor face appalling poverty. I would argue that a free society with low taxes and as much reliance on markets as possible is the best way to maximise growth and opportunities for all; the fact that it will create lots of billionaires is irrelevant.
Which brings us to another crucial issue: most commentators fail to distinguish between inequality which is the result of market forces and that which is the result of political action. Those who invent or commercialise a new product, who spot new trends in markets and act upon their insights or whose skills are valuable to others will make money in a way that also helps to promote the general well-being; those who become rich by getting the state to rig markets or to extract cash from others under threat of force enjoy the wrong kind of inequality.
These kinds of confusions all too predictably plagued the Conference on Inclusive Capitalism, held yesterday with great fanfare (albeit largely in private) and featuring a long list of card-carrying members of the global establishment, all of whom earn far more than the average worker. It was a love-fest for the conventional wisdom, as such events always are; it was opened by Prince Charles, who until now I had never imagined as a crusader against inequality. He argued that “the primary purpose of capitalism should be to serve the wider long-term interests and concerns of humanity, rather than the other way round” – a statement which sadly didn’t add much to the sum of human knowledge.
It is of course an urgent priority to make our economic system more inclusive – but once again there are good and bad ways to try and achieve this. Improving education (hopefully by harnessing market forces), boosting productivity, making deprived areas more attractive to entrepreneurs and investors to improve the opportunities for the poor, eliminating protectionism and tearing down barriers to entry – these are some of the ways that real progress can be achieved.
Governor Mark Carney’s own musings fell into some of the predictable traps – but his most important conclusion was spot on. He called for the immediate end to too big to fail and for countries to finalise their plans for resolution mechanisms to allow even the largest financial firms to go bust in an orderly manner. As Carney rightly understands, the kind of inequality created by bailouts is deeply corrosive. There should be no welfare state for bankers – on that, let us hope that all sides can agree.
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