Russell Brand’s call for revolution reverberated with many beyond the underclass he referenced. In his viral interview with Jeremy Paxman he confessed he was in the visceral realm of politics, angry, frustrated and without definitive solutions to the issues he was raising. Nevertheless two important themes emerged, the lack of political alternatives and inequality. Taking the baton from Brand, the following is the background to his message.

In 1971, a year before investigative journalists Woodward and Bernstein helped break the Watergate scandal, President Nixon and his staff changed the face of the international political economy. There were no incriminating break-ins, no cover ups, no whistle-blowers and no grand expose.

The act was the termination of the gold standard effectively making the dollar the world’s reserve currency. The decision was taken unilaterally and sold to the US public as a patriotic stand against foreign influence. In reality it was more than a protective measure, it afforded America cheap borrowing .

This effectively dismantled the post-war economic system which had overseen decades of growth. In 1944 war allies met at Bretton Woods to devise a response to the preceding chaos. The punitive 1919 Treaty of Versailles reparations, the Great Depression and a lack of global economic coordination combined to create the climate for World War Two. The Bretton Woods system installed the World Bank and the International Monetary Fund (IMF) as respective agents of post-colonial development and last resort global lending.

This oversaw steady growth until spending on an irresponsible Vietnam war and foreign speculation resulted in Nixon de-pegging the dollar to gold. The loss of confidence in the convertibility of the world’s reserve currency meant floating exchange rates, a global market system of currency supply and demand. This was casino capitalism and America owned the gambling floor. The Federal Reserve, the central bank of America could now liberally print dollars to meet perceived demand and lower inflation. Money was losing its value.

The Washington Consensus

The Nixon Shock begat a volatile decade and created the platform for the neo-liberal Washington Consensus.Advanced and transitional economies in the 90s were subjected to rapid market deregulation and trade liberalisation. This dovetailed with privatising Reaganomics and Thatcherism. Competitive markets would ensure a supply-side growth aided with cheap credit from central bank money printing. Inequality was masked as inflation was kept low and excluding a few largely ignored warning signals, a boom emerged.

The reality was that Gini coefficients revealed a rise in inequality in nearly all advanced economies since 1980. The Gini scale uses 0 to indicate everyone having the same income, a score of 1 represents one person having all the income. This compares unfavourably with the post-war Bretton Woods gold standard era up until the Nixon Shock. The growth metaphor of the rising tide, instead of lifting all boats mostly favoured yachts. As in all business cycles, a bubble expands then bursts and the rest is recent history.

Inequality

Ex-World Bank head and winner of the Nobel Prize for Economics, Josef Stiglitz authored The Price of Inequality . Noted champions of the free market, The Economist compiled True Progressivism a report discussing bottom-up economic remedies. The BBC has commissioned a series on poverty, with inequality an underlying theme. The gap between rich and poor is a concern of various political parties and organisations. Richard Wilkinson and Kate Pickett founded The Equality Trust in the UK with Bill Kerry. Globally the Occupy and Uncut grassroots movements use activism to protest against the hegemony responsible for the economic malaise. Even the neo-liberal IMF have researched the effects of inequality on demand.

The Spirit Level is award-winning research in which epidemiologists Wilkinson and Pickett compare inequality with social and health issues. Examples include infant mortality, social mobility, homicide, obesity and prison rates.

A key finding was that measures of happiness and life expectancy did initially increase along with nations’ average incomes, but produced diminishing returns at a certain level of wealth. The USA spends the largest amount on health proportionally but this is not reflected in their health ranking. The conclusion is that relative wealth within societies had a stronger relationship on the indicators than did absolute wealth between countries.

The intra-nation inequality data reveals a clear pattern for advanced economies. Scandinavian nations with the most egalitarian societies had good scores on the indicators. The findings frequently grouped the Netherlands, Austria and Germany in the upper mid-range, with Canada, Australia, New Zealand and Italy worse off. Tellingly the most open free market economies of the USA and UK consistently had the highest inequality and least desirable social and health scores. The trend had English-speaking nations suffering the most from the inequality disease, as if spread through both a shared language and that of economic liberalism. Very similar correlations were discovered within US states, with the historically divided South on the negative side of the trend.

The Spirit Level authors look for causation explaining how income inequality can erode social capital, such as trust. The argument is that an individual’s sense of status is influenced by levels of equality in society. Status anxiety results from unequal societies and contributes to social and health issues. Research reveals that a significant proportion of the poorest in America still had air conditioning, a second car and the latest TVs to ‘keep up with the Jones’. In search of material wealth low income families divert funds away from nutrition and well-being, resulting in health deficiencies. No surprise that obesity has shifted from being the disease of the indulgent privileged to the poor family’s burden.High calorie comfort eating among the low income is well documented .

Growth stimulus

Ultimately this impacts on economic growth. In many cases an individual’s obesity or poor malnutrition hinders their earnings as they are more likely to succumb to related diseases. Similarly a high population of long term prisoners strains government budgets twice fold, draining state provisions and reducing tax take from missed earnings. In many cases the prisoner’s desperate family turn to crime adding further to the concentrated economic decline.If governments have no stomach for the moral case of rehabilitative prison then at least they should consider the long term economic benefits.

This underpins a persuasive argument of The Spirit Level, that the rich are not immune from resource-draining inequality and its competition deficit. The phenomenon extends further. Shorter life expectancies were prevalent in US states with the larger wealth gaps for the rich, poor and middle income earners. The Spirit Level shows how only comparing higher income bands between countries still reveals the same undesirable effect of inequality. This applied to health issues such as heart disease, hypertension and cancer as well as literacy. Tellingly the death rate in the highest earning band of English and Welsh working men was still higher than the Sweden’s lowest earners for the same demographic.

As always there is scope for doubt in causal claims, it is hard to devise research that would be conclusive in the qualitative realm. However, the trends are too stark to ignore with a growing number of voices highlighting inequality. As The Spirit Level claims it is ‘an idea whose time has come’ and right on cue the financial collapse provided the backdrop to its publication in 2009.

Counter-arguments focus on the individual’s choice to be involved in contributing to negative social indicators. The criminal chooses to commit a crime and add to the statistics. An individual’s background is irrelevant in the supposed utopia of individual responsibility – which magically starts on a government defined day, often 16 years after birth. Dismissing context is a recipe for repetition. Might there be other solutions to an abundance of homicide other than capital punishment, especially as murder rates in death penalty US states surpass those without it. The lack of lateral thinking and attention to statistics among ‘inequality deniers’ raises questions about their commitment to long term solutions.

The intelligent children of low income parents might not choose to languish in low paid jobs. They simply cannot afford an education that allows them to sell themselves over well educated contemporaries. An argument can be made that intelligent ambitious low income children would be more likely to work harder through the necessity to overcompensate for their backgrounds. This could be in contrast to their better off opposites coasting in well paid jobs because life has afforded them connections and status and with that, complacency. Such a phenomenon suppresses potential achievers while the assumed egalitarian utopia ignores the injustice of ingrained social division over centuries. The game may have the same rules for everyone, except some are predisposed to play with better hands. Ultimately society loses if fair competition, so loved by the free market, is stifled.

Bottom-up not top-down

Meanwhile the solutions have precedents. Strong upward educational mobility benefited the USA during the Bretton Woods era in contrast to post- Nixon Shock. Japan’s pre-tax income parity muffles the neo-liberal cry of redistribution.

Policies for cohesive societies are not the concern of the global consensus dominated by the US-lead G20 and IMF. The Fund’s stringent call for UK/Eurozone austerity is a case in point. Angela Merkel can impose punitive market-approved austerity on Greece in the face of popular opposition of its citizens. The same citizens were ignorant of their politicians’ statistics manipulation that gained their spurious Eurozone membership. A house of cards built on the foundations of democracy.

Neo-liberalism has its own redistribution, more Nixon shock-enabled central bank money printing known as quantitative easing. This lends banks government funds to stimulate the economy, but because of the lack of confidence, previously cavalier investors become cautious hoarders, stalling bottom-up liquidity and growth. In this scenario the trickle-down model of the Washington Consensus is a useless puddle for clingy wealth creators. This cripples aggregate demand for products and services contradicting the solutions of lauded depression economist John Maynard Keynes. His macroeconomic remedies of government spending and full employment lead the global post-war recovery. Today Nobel Prize-winning New York Times economist Paul Krugman supports a contemporary Keynesian solution instead of the stifling austerity with no historical precedent for growth. Ireland cut furiously and is faltering . Globally, emergency Keynesian stimuli successfully limited the damage of the 2008 collapse.

Ultimately Nixon was pardoned for Watergate, but initiating a new era of inequality is the real scandal Russell Brand rails against.

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This post was written by Ruben De Sai