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photo Pierre Whalon

“To help the poor, study economics”: income inequality, justice, and economic theory

Part The Last:

This series started with the fact of huge income inequality, with only 28 people holding the same amount of wealth as half of humanity, each of these wealthiest of the wealthy owning as much wealth as some 119,642 857 people. Furthermore, the processes that enabled such outrageous fortunes to develop are closely tied to the rapidly-degrading climate of planet Earth. Besides that, this inequality stokes wild political instabilities. Finally, the financial system that promotes profits from rents over production is destined to crash.

The sorcerer’s financial apprentices

Kathryn Tanner, an astute observer of economics, describes the economic and human transformations that the rise of finance from servant to master has precipitated. Profits from the financial sector have assumed a growing importance to nonfinancial firms. General Motors Financial, for example, is the only GM division whose profits have grown steadily.[1]Although in the different but linked basic and surplus economies of consumers and producers, finance still serves its redistributive function, finance has taken on a life of its own. It no longer serving those economies; it holds the whip hand. Secondary “shadow” markets have sprung up where the traditional financial instruments (loans, stocks, bonds) are themselves “packaged” to be sold and traded by means of derivative instruments. So your home mortgage with Acme Bank, for instance, is no longer held by your bank, because Acme sold it to Gigundous Finance, which combined it with hundreds more mortgages, created a bond composed of them, and sold “tranches” (French for “slices”) to bettors — I mean, investors — on an exchange to which you and your money are not welcome. And then there are derivatives of those types of funds as well.

Ignorance as well as greed

The end result of the general economic rhythmic flows should be a standard of living — the biblical ideal. Specifically, Lonergan means a general shared level of material wellbeing in the community or nation under consideration. He does not hold out hope for the complete elimination of income inequality, since it is based ultimately upon the given facts of nature. However, he has blistering comments for wealthy rentiers.

Of itself, the productive process can give the fortunate more than they desire; moreover, it would like to treat all with a generous hand, for only by such generosity can it attain its maximum. […] If idealism can be brought to learn the discipline of logic and of scientific reflection, then it will impose a generalization of the exchange economy. […] The vast forces of benevolence can no longer be left to tumble down the Niagara of fine sentiments and noble dreams. They have to be assigned a function and harnessed within the exchange system, for in no more way can that system shake off its fictitious fetters to move consistently toward its maximum.[4]

So while he is clear that economics has laws as inevitable as the laws of physics, which would seem to give credence to systems like that of Friedman,[5] Lonergan also shows that such systems simply do not account for those laws. Furthermore, they promote a complete misunderstanding of profit that comforts the view that maximization of profit is the only course for a firm to take, without any consideration whatsoever to the common good of the economy — i.e., the people — that allows that firm to exist.

Avoiding the worst

Naomi Klein is skeptical that humanity can change the global economy in time to avoid permanent and severe climate change.[9] At the same time, the present economy that has brought about unprecedented inequalities in income is headed for the wall. Only by heading off both the planetary catastrophe and the economic crash in one basic move, before both occur, can there be hope of making lasting change.

Written by

Bishop in charge, Convocation of Episcopal Churches in Europe, 2001–2019. French-American. Musician, composer, author, happily married. www.pierrewhalon.info

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