It might be better if economic theories and policies are framed on the basis of debt rather than wealth. Private wealth, unequally distributed as it is, is scrupulously guarded; public debt is shared. The real cause for inequity and persistent poverty is not the disproportionate ownership of wealth but the unfair burden of debt. The privileges bestowed on the rich are far greater than the grants extended to the poor.
There are various arguments suggesting a solution. Yet, broadly, they fall into just two sides.
A: The rich worked hard; the poor are lazy and haven’t tried enough. This equation doesn’t admit luck or acknowledge socioeconomic implications on one’s choices.
B: Luck and socioeconomic factors strongly influence one’s choices. The rich, therefore, owe it back; the poor deserve equal opportunity and fair support.
There’s, of course, a third side too:
The rich are exploitative; the poor are exploited. It’s an unfair world. Nothing can be done.
(Although equally valid, this is good only for essayists and leftist writers. For the earnest who want to crack the riddle, this argument leads nowhere.)
In capitalist economies (also in mixed economies that strongly lean toward capitalism), side A is favored. The rich become richer, the poor, poorer. And money becomes the sole measure for every endeavour. Individual achievement is given more credit than it deserves; charity is held as noble and a favour to the less privileged, and status quo is accepted as the rightful norm.
This point favors the rich and holds no hope for a fair assessment.
It is, then, the second point that is fair and objective. While it doesn’t undermine individual contribution, it acknowledges the external factors too. It opens up, for someone keen on policy, various possibilities to ensure that exploitation is curbed and choices are made available equally. The arguments have, however, always revolved around wealth. There’s the demand for trickle-down of wealth from the rich to the poor; in contrast, there’s an expectation for the poor to become rich. The former is discouraging and regressive, the latter is unreasonable, in the absence of equitable socioeconomic measures.
The focus has always been on wealth, in both trickle-down and trickle-up approaches. This is fallacious. The world doesn’t become richer when you create more wealth, but only when you cut the debt (even if wealth remains same). Since 2007, none of the major economies has decreased its debt-to-GDP ratio. Consequently, even amid the rhetoric of impressive economic growth, super-economies, etc, the world is staring at a very affecting crisis.
Being rich is just a measure of one’s ability to clear debt. When your income / assets exceeds your debt / liabilities, you are rich. When they are equal, you are in the middle. When your debt / liabilities exceed your income / assets, you are poor. Society imposes the same aspiration among the three, regardless. That of becoming rich. In such a setting, it’s far easier for the rich to become richer than for those in the middle-group or lower to become rich.
For, the rewards are differential but penalties are same.
Out of the wealth trap
Wealth never trickles down, except in theory. Debt does, though (when a giant bank is bailed out, for example). Wealth might trickle up. Debt hardly does. This is the crux of the problem. When the poor are offered micro-loans, they are encouraged to create wealth. Appreciable as it is, it does little to cut their debt. It adds to their debt, on the contrary. What is needed, instead, is for debt to trickle up. The poor need not become rich, it’s far more important that they become less poor. So, the debt needs to be moved up, the debt needs to be distributed.
When we strive to distribute wealth, the incentive goes against the rich. On the other hand, when we distribute debt, it becomes an equal responsibility. Consequently, it becomes an incentive for the rich to assist the poor to cut debt. This may not lead to the utopian “everybody has enough and nobody has too much” (courtesy, Russell) world, but this certainly helps poor to be less poor.
In a consumerist culture it sounds rather odd, but the richest person is not the one who has everything but he who wants nothing. If we readily buy the delusional rhetoric of growth and ignore the persistent problem of debt, we will have completely ruined it for the next generations.
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