23 December 2014

Ending the Vicious Cycle of Economic Inequality with Living Income Guaranteed

“Rising economic inequality was a major driver of the financial crisis. With the OECD recently debunking ‘trickle-down’ economics, our new report sets out the links between inequality, the growth in scale and influence of the financial sector, and the dangers for financial stability.”

“Privatisation and the doctrine of maximising value for shareholders have increased the amount of economic activity focused on extracting the largest possible short-term profit. These trends are referred to collectively as ‘financialisation’.”

“This diagram lays out the seven indicators of economic instability, each fuelled by rising inequality and increasing financial sector activity:

Our report describes how these indicators laid the path for the 2008 crash, and threaten to do the same again:

  1. Increasing inequality depresses demand since consumption levels depend more on the wages of those at the lower end of the income scale, than the profits of the wealthy
  2. In the face of stagnating wages, households rely increasingly on debt to maintain their lifestyles with rising asset prices, especially in residential housing, worsening this.
  3. Financial liberalisation allows money to flood into countries with trade deficits, such as the USA and the UK, providing the funds for debt-led consumption.
  4. Snowballing wealth at the top increases risky financial speculation.

Inequality doesn’t bring growth, it brings economic instability

In recent years there has been a marked slowing of growth across the world’s wealthiest economies, with none returning to the growth trends experienced before the crisis. Many have begun to speculate that this stagnation could, in fact, be a permanent development – meaning that wealthy economies are fundamentally unable to create enough demand to keep growing.
The mainstream political consensus has for decades now suggested that inequality is a price worth paying for economic growth. But new research from the Organisation for Economic Co-operation and Development (OECD) shows definitively that this inequality/growth trade-off is false – adding to a growing body of research showing that inequality actually prevents economies from growing. This points to a fundamental structural flaw in the economy: if the proceeds of growth are not shared, the pie stops growing.

The pursuit of higher returns for the already wealthy within this dwindling pie cannot persist forever. With wealth refusing year on year to trickle down, debt has been used to plug the wage-consumption gap for the rest. The signals are showing quite plainly that this pursuit of growth, via inequality, is ineffective and unsustainable.”

The New Economic Foundation suggests both reversing the trend of liberalizing the financial market and at the same time implementing efforts to reduce inequality. The implementation of the Living Income Guaranteed proposal will see poverty eradicated  and ensure a limit to inequality where, at the very least, everyone will have an income sufficient to lead a dignified life – herein effectively stopping the currently allowed trend of unrestrained inequality where the wealth of a small elite is paid for by the lives of many. Concurrently, financial markets will be restrained by limiting the need for excessive debt and the move towards citizen shareholding of human rights and basic resource companies – where those profits are utilized for the funding of a Living Income Guaranteed – flowing back into the goods and service market – and no longer the currency in a financial monopoly game. Unfettered inequality and an unrestricted financial market are unsustainable – the solution is here – please read and share the Living Income Guaranteed Proposal to redefine our economy and manifest the values and ideals of humanity, dignity and justice – in fact.

About the New Economic Foundation:

NEF is the UK's leading think tank promoting social, economic and environmental justice. Our purpose is to bring about a Great Transition – to transform the economy so that it works for people and the planet.

The UK and most of the world's economies are increasingly unsustainable, unfair and unstable. It is not even making us any happier – many of the richest countries in the world do not have the highest wellbeing.


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