Equality is good – but it costs.

A version of my column in the Irish Examiner.

The last few weeks we have seen yet more charitable and voluntary bodies being raked over the coals of media stoked political charcoal, regarding their salaries and payments.  A new line now seems to be emerging in government; that those who are in receipt of public funds should have their salary details made public. That makes eminent sense. Of course, it would be much more credible were it to be actually done. Eamonn Gilmore is not powerless in this regard. He is the deputy prime minister and the leader of a minority party without whos support there is no government.  We have seen minister after minister come out and leap on the bandwagon of public concern around salaries. After a few trots round the track they quietly slip off and hop back into the merc for a bit to recuperate. Its also notable that while they have stood back and held the coats while the charity sector gets a licking they seem to be joyfully powerless to compel details of, say, NAMA or NTMA staff, or the staff of the state supported or bailed out banks. Its never clear if the call for transparency is around a significant sum being given from the state or if a single penny is enough to require transparency. As in so much this is reflexive gobwagoning.

Transparency is in general a good thing. If the ministers truly wished to have transparency across the salary pitch they would adopt the Nordic model and make tax returns public. Yes, yours. And mine. That would at a stroke render moot the staged faux outrage by ministers and baa baa baaackbenchers around pay.

While it would satisfy the prurient itch in all of us as to what our fellow workers and neighbors earn it would also act as a powerful signal. That signal would not however be one that any Irish government would wish to send, as it would be a signal of the true state of inequality in Ireland.  The reality is that we are seeing in the world the rise and rise of a plutotarchial class that would put Marcus Crassus to shame.  At one level this is the reward for disruptive talent. Some inequality is good as it acts as a spur. If people see that talent is rewarded that hard work pays off and that risk is rewarded than they will act accordingly. But the evidence of economics and the feeling in many peoples guts is that this is very nonlinear. At higher levels of inequality the situation flips – why work hard, why invest, when the hyperwealthy have all the power. The oldest golden rule is that he who has the gold, rules.

The wonderful book  “The Spirit Level” makes a strong case that it is income inequality within countries (as well as between them but more strongly within) that matters for social outcomes with long economic tails.  Child welfare, crime, social deprvation, social inclusion, interpersonal trust and social mobility, all these are strongly associated with inequality. More inequality is associated with poorer outcomes in these metrics.  In the domestic context an interesting recent finding suggests strongly that innovation and income inequality are related, strongly and negatively. The less unequal societies are the more innovative it seems they also are.  And innovation, we are told, is A Good Thing.  A practical and chilling example of how the rich will eventually choke on their own money was shown recently.Research indicates that 90% of the growth in consumption in the USA over recent decades came from the top 20% of income earners.  In the end, if there is no mass market for products then companies will cease innovating. We will see stagnation in product innovation and in the end in the very engines of growth that have propelled the 1% to power.

Ireland is not an especially unequal society.  Inequality in Ireland tends to be a feature of the bottom not the top – we have quite a gap between the lower earners and the median earners, but not as much between the median and the higher earners. Nonetheless, we are by no means an equal society. Greater equality can arise only by redistribution of wealth. Power and money beget power and money and thus relying blindly on economic growth will not and has not resulted in less inequality. Redistribution implies tax. Nobody likes tax increases, but a higher rate of tax on higher earners would result in at lest in principle an ability to reduce inequality.  The difficulty for politicians is that they cannot persuade people of the need for same and will not .  Leaving aside the lack of a vertebral column amongst our leaders, the issue is also rooted in behavioral economics. Those who do not have sufficient income to be liable for any increased income taxes are unlikely to vote for them in any case. People like lottery type payoffs with positive skewness – in other words, they like the chance that they may make it big. And if they were to make it big, to become the high earner, they would not wish to pay the higher tax. The difficulty is that the preconditions to achieve high payoffs may require higher taxes to engender them.

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2 thoughts on “Equality is good – but it costs.

  1. TONES

    I think it is particularly important that not just earnings but patrimony is public knowledge in Ireland. This is particularly so for those (many of Ireland’s high rollers) who were rescued in the collapse by government funds. It is important that the people who paid for their lifestyles to be maintained know more about who they are and therefore society could have a better idea how to avoid such a collapse in the future. I think it would also help with prosecutions of bankers and government financial regulators, central bank officials and members of the

    One way to introduce it is to require that all companies that receive (directly or indirectly) money from the government (in the form of contracts or subventions or rescues in NAMA of their unpaid debt for example) should make transparent all of their patrimony (and that of their families) at home and abroad (land / properties / shares and trusts). One could extend this to other owners with say a >1% shareholding in rescued entities and company directors or owners of trusts.

    In the US for example certain rules apply to city contractors but not to the general public — as the contractors receive public funds so the city requires that they comply with extra rules such as higher minimum wage / transparency etc… !

    Reply

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