Inequalities' inequality or the triple rule of economic psychology

  • View

  • Download

Embed Size (px)


The triple rule of economic psychology is the cardinal rule of identity economics: the income inequality ought to be less than that of wealth;the welfare inequality ought to be less than that of incomethe dignity inequality ought to be zero.The mediator of the first storey of the triple rule is the progressive taxation; that of the second storey is the paralleled elite and mass production and the organizations' allowance policy; and, finally, the mediator of the third storey is the Unconditional Basic Income.

Text of Inequalities' inequality or the triple rule of economic psychology

Inequalities' inequality or the triple rule of economic psychology*A chapter of the monograph ReconsideringIdentity Economics Human Well-Being and Governance. N. Y.: Palgrave Macmillan (forthcoming).

Twenty-two years ago at the Hungarian Academy of Sciences I delivered a paper about the economic psychology of the equality and inequality.1The texte got published, in Hungarian, by the theoretical journal of the Presidium of Hungarian Academy of Sciences: Magyar Tudomny. XXXVIII. vf. (1993) 8. sz. 967-971.

I studied foragoodwhile the universe of the second modernization and by my lecture I meant to provoke the learned audience to discuss a basic dilemma of the modernization: namely that it would be impossible without a high degree of economic inequality, because only such a relationshhip makes interested those who benefit from that development but, on the other hand, it would be impossible with a high degree of economic inequality neither, because it would raise against it those who suffer in this relationship. Which would mean will follow with logical necessity that modernization is simply not possible, because the inequality either is or is not of a high degree. However, the modernization did occur in some societies, I argued.Now, it turned out that the economic psychology may provide us something for elaborating a technique of dealing with that inequality dilemma. The point is that that interface science deals not just with the things' atributs but with their relations. A longitudinal psycho-economic study between 1946 and 1970, ten times put to a comparable selected sample of its subjects the same question whether they are generally very happy, "fairly happy or "not very happy with their subsistence/living. The answers trivially showed a very strong correlation with the income. But what was not trivial, is that the response rate turned out to be remarkably stable during a quarter of a century of study (10% - 50% - 40%, respectively), whereas the real income increased by 62% during this time. It seems, however, that the satisfaction is not primarily dependent on the absolute size, but on the relationship between one's real income with that of other people. In compliance with this, when, for example, Tibor Scitovsky deals from the point of view of economic psychology with people's material life conditions for him the matter is not just how wealthy or poor one is, but how strong is the degree of the inequality's relationship between those wealthy and poor. He states that in the modern socio-economic system the people establish some kind of public preference in the allocation of the property and of the income judged to be optimal. And when the government deals with the distribution of wealth and income so that itshould be modified to match that public preference than it provides a public service that belongs to the same public goods, such as, public transport, urban parks or the defense, Scitovsky argues. This not too trivial thinking considers that a fair distribution the public transport have in common that the public money is spent in both cases on a service where the personal taste differences disappear: your public transport is at the same time my public transport as well. The existing bus itineraries and schedules may fit better to your specific needs than to mines, but we share the same transport network, and there is no way to meet simultaneously your sympathy towards the buses and my antipathy against such vehicles. The same is true for the allocation issue: someones financial situation is better than others but the unequal distribution of income and wealth is the same, its degree is common for all of us. If the distribution system wish to adapt to the preferences of the community, it oughts to adapt to a consensus or compromise between different preferences.This psycho-economic logic of reasoning is unusual in that that the equitable distribution of social equality and inequality is not opposed here from the outside as some moral aspect to the economic aspects, but it is inherently one of these. The theoretical and empirical investigation, which concludes from the consumers' market behavior to their preferences, and then tries to define how well the production and distribution of goods and services fits to these preferences, may establish, how decision makers may at the relatively lowest cost to the relatively highest level satisfy the preferences all this is an integral part of the economics, Scitovsky argues.2For more details see Scitovsky, T.: Human desire and economic satisfaction: Essays on the frontiers of economics. Brighton, 1986, Wheatsheaf Books, 4.

In such a logical system of the reasoning fits my study, the results of the above-mentioned lecture presented to the Hungarian Academy of Sciences. The core of the interconnectedness I presented is complex and yet very simple: a triple rule. According to it in today's societies cotton together an even fantastic size of inequality and a high degree of equality.

If even an amazing degree of the wealth inequalities is associated with a much lower degree of income inequality;

if the latter is still at a great degree but accompanied by a more equal distribution of well-being;

Finally, if the latter is still not that equal but, however, associated with a full equality in dignity.

Dignity isn't hear a moral quality either, but a very serious psycho-economic factor defined by that part of the consumption which the people are not free to choose for getting themselves pleasure a welfare, but which is indispensable for the subsistence and not in a purely biological, animal but in one's human quality. On the triple rule of the equality / inequality there can be built such insights, which opposes itself to the practice claimed to be socialist that for establishing the society of people with dignity equal to each other created a population equalized with totally confiscated wealth. But it also rejects the actual restoration practice aiming a primary accumulation of capital and for that wealth inequality introducing an unheard-of dignity inequality between those in ostentatious affluence and the pauperized ones.Both socialism's, and capitalism's orthodox ideology has the same logic whenever it's about equality/inequality matter: this relation is considered as if it would be given as just one block. However, dealing with property, income, welfare or dignity can be quite separable from each other. And in everyday practice of both socialism and capitalism this separation is actually performed.While the formula named as "socialism" with respect to assets almost consistently stuck to the principle of equality, on the other hand, as to the income there was regularly organized campaigns against the "egalitarianism". And although the earnings dispersion was, however, not to become on a massive scale, however, there was established a system of free or reduced allocation in kind, which enabled it to social categories of beneficiaries whose income may barely rose above the social average, to enjoy a well-being that is significantly higher than the average. Finally, if the inequality in the well-being was still somehow limited according to the ideology of socialism the inequality of dignity which the nomenclature assigned to different people exceeded any mesure.The nomenclature used to be a system of lists that asigned both social competence that refered to the party more central or more peripheral management (to the Central Committee of the Party, to the Committee in Budapest, to any county, let alone to a district or, finally, only to the leadership of the job's party organization) having the scope, secondly, the people who come into play in terms of the powers in question.Whether one appears in a more central or more peripheral list, this circumstance strictly defines for him/her a higher or lower dignity, respectively, with the end values of this inequality defined, on one hand, by the personality cult surrounding the leader and, on the other, by the show trials against enemies of the people. Thus, the Bolshevik-type socialism3. The bureaucratic state governed by an illegal movement and The paradoxes of the Bolshevik-type psycho-social structure in economy in Garai, L.: Reconsidering Identity Economics - Human Well-Being and Governance. N. Y.: Palgrave Macmillan (forthcoming)

while all along insisted on the implementation of the program of a radical equality, implemented an unprecedented degree of inequality.On the other hand, the opposit formula, mentionned as "capitalism", also at the point of asset property stuck to his principles, according to which the inequality isdefinitelycontra-indicated to limit (because it can only be done at the expense of economic efficiency), but during its periodthat was being called welfare state limiting mesures of such an extent got inaugurated that previously was only known from various utopies. The best known among these limiting mesures was the highly progressive taxation. And, at that, its particular version, where the tax base got counted that way that the income per capita within the families was considered for its amount. This in turn has created an opportunity, so that in the lower income sector(s) negative taxes was imposed as a kind of social assistance. Thus reducing the high and increasing the low income fitted in an integrated system of limiting the inequality of incomes. In such a system the income originated from ones work (whether performed by employees or by libre entrepreneurs is comparable to that that are derived from the property. And by the same token, certain tax systems lay a lower tax rate on the income originated from the work than on that is derived from the property (this distinction has not much to do with socialist ideology, given that it used to be