“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.
Humans are amazingly adaptable creatures, but you wouldn’t want to live in a world after both climate and economic disasters.
What I have been doing is presenting to you Bernard Lonergan’s theory of capitalism that is actually scientific. It has the potential to transform our economy for the benefit of all. While he foresaw the possibility of the rise of finance-dependent capitalism, he died in 1984. So, I turn now to answer whether this theory is still valid in the face of today’s capitalism.
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.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.
Furthermore, an investor can borrow money to pay for her purchases on these exchanges. Such “leverage” is what make these derivative transactions so lucrative. You can make a lot of money even during a recession or even depression, provided your bet — I mean, investment — is right. The effect is the uncoupling of financial transactions from the basic and surplus economies. But as in any other casino, the only value is winning. Losers deserve nothing.
However, the whole racket depends upon the continued functioning of the real economies that sustain human life. But money being power, as Tanner shows, finance now dictates two basic imperatives. The first is that every publicly-traded firm has to aim at maximum short-term profitability with no other concern getting in the way — the Milton Friedman dictak on steroids. The Earth must be squeezed for raw materials. Workers and governments too must be squeezed. And squeezing us all is the need to get into debt. Want an education? Need a car (no luxury in America)? How about a house? More month than money? Get a loan.
Then you have to work, no matter what. As Tanner argues, your past (the loans) ends up being your present and your future. Meanwhile the sorcerer’s apprentices of finance get rich trading the derivatives they devise from your loans, the loans to corporations and their raiders, the financing extended to governments — all one big impersonal squeeze. In this 21st-century rat race, if you lose out, you deserve it and no one has to help you. It’s as if we are all being forced to play in a gigantic casino, and yet made to like it.
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.
Yet the overall problem is not just individuals’ greed. It is generalized ignorance of the laws governing the functioning of an economy, beyond particular individuals’ selfishness. When an expansion comes to an end, since its true causes are not understood, people act not out of an intelligent grasp of the situation and its remedies, but rather self-preservation, in other words, flight. The herd goes over the metaphorical cliff, which precipitates a depression, even a crash. Along with the basic and surplus economies, the finance “economy” will go belly-up. As in 2008, they will drag us all to the depths.
Lonergan’s “radical generalization” offers a new and fresh way forward.
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.
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, 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.
Lonergan’s remarks about “Moneybags” taking surplus income out of the productive cycle are damning. Of course, one may certainly seek through enterprise to increase one’s own standard of living, but to launch and manage a firm, either in the consumer or producer economy, is first of all to join in the success or failure not just of an individual, but of the whole. Investments must be above all productive, and innovation needs to be rewarded, insists Lonergan. His work is the beginning of a science that promises to “retire the brain trust but make the practical economist as familiar a professional figure as a doctor, a lawyer, or an engineer…”
Avoiding the worst
Naomi Klein is skeptical that humanity can change the global economy in time to avoid permanent and severe climate change. 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.
This is not a matter of left- or right-wing, of free markets versus socialism. Those old divisions have ceased to have meaning since the collapse of the Soviet Union, the development of China-style capitalism, and the rise of global finance with its unregulated shadow money markets. Even at the Davos conference, the message has gone out to all: income inequality is the greatest present threat. As I have argued, it is in fact the symptom both of ignorance of the real laws of economics, not to mention the usurpation of the redistributive finance role from servant to master.
The very survival of 100% of the human race, never mind the 1%, in any kind of future that anyone alive today would find acceptable, is therefore at stake. In demanding a real science of economics, we can propose the beginning of a solution that is both economically realistic and morally compelling.
The challenge of such a re-education program for all, and the re-orientation of finance, is enormous. The potential for catastrophe is greater, however, one that can no longer be denied or fatalistically accepted. Present levels of income inequality are the warning sign. A warning which can no longer go unheeded.
 See here.
 Kathryn Tanner gave the prestigious Gifford Lectures in 2016, and she published them as Christianity and the New Spirit of Capitalism (New Haven: Yale University Press, 2019). She gives a trenchant analysis of the human effects of finance-dominated capitalism, within its own terms, and at the end reinterprets those terms theologically.
 Macroeconomic Dynamics: An Essay in Circulation Analysis, (Toronto: University of Toronto Press, 1998), 82. Hereafter MD.
 For a New Political Economy (Toronto: University of Toronto Press, 1998), 36. (Hereafter FNPE) and see also MD, 36. Lonergan’s analysis shows that an economy run by a real science, controlled democratically, will be able to give “the less fortunate more than they can supply.” However, this will require dismantling the “artificial nemesis” of economic “realities” as routinely accepted, transforming not only the old guard’s abuses but also the scattered attempts of the reformers into a higher perspective.
 E.g., Milton Friedman, “The Methodology of Positive Economics,” in Essays in Positive Economics (Chicago: University of Chicago Press, 1953).
 FNPE, 88.
 The notion of “pure surplus income” is central to Lonergan’s analysis. It arises from the expansion of the surplus firms, either through increasing the number of basic firms needing new equipment, or by invention of better, more efficient equipment that increases output of better goods and services, or rarely, both. It is the “remainder of income that is not spent at the basic final market either by its recipient or equivalently through the actions of others spending more than they earn. [It is] net aggregate savings and viewing them as functionally related to the rate of new fixed investment.” As expansion grows in the basic economy, it moves toward zero. “Entrepreneurs are quite aware that there are times of prosperity in which even a fool can make a profit and other mysterious times in which the brilliant and the prudent may be driven to the wall.” (FNPE, 297–8) If the inhabitants of Spud Island (see Part 4) succeeded, it is because they managed the creation and decline of their pure surplus income as their overall standard of living increased.
 FNPE, 37.
 Naomi Klein, This Changes Everything: Climate vs. Capitalism (New York: Simon & Schuster, 2014), 61.
 A beginner’s guide is Philip McShane, Economics for Everyone: Da Jus Kapital (Vancouver: Axial Publishing, 1998).