Inequalities' inequality or the triple rule of economic psychology

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The triple rule of economic psychology is the cardinal rule of identity economics: the income inequality ought to be less than that of wealth;the welfare inequality ought to be less than that of incomethe dignity inequality ought to be zero.The mediator of the first storey of the triple rule is the progressive taxation; that of the second storey is the paralleled elite and mass production and the organizations' allowance policy; and, finally, the mediator of the third storey is the Unconditional Basic Income.


Inequalities' inequality or the triple rule of economic psychology*A chapter of the monograph ReconsideringIdentity Economics Human Well-Being and Governance. N. Y.: Palgrave Macmillan (forthcoming).

Twenty-two years ago at the Hungarian Academy of Sciences I delivered a paper about the economic psychology of the equality and inequality.1The texte got published, in Hungarian, by the theoretical journal of the Presidium of Hungarian Academy of Sciences: Magyar Tudomny. XXXVIII. vf. (1993) 8. sz. 967-971.

I studied foragoodwhile the universe of the second modernization and by my lecture I meant to provoke the learned audience to discuss a basic dilemma of the modernization: namely that it would be impossible without a high degree of economic inequality, because only such a relationshhip makes interested those who benefit from that development but, on the other hand, it would be impossible with a high degree of economic inequality neither, because it would raise against it those who suffer in this relationship. Which would mean will follow with logical necessity that modernization is simply not possible, because the inequality either is or is not of a high degree. However, the modernization did occur in some societies, I argued.Now, it turned out that the economic psychology may provide us something for elaborating a technique of dealing with that inequality dilemma. The point is that that interface science deals not just with the things' atributs but with their relations. A longitudinal psycho-economic study between 1946 and 1970, ten times put to a comparable selected sample of its subjects the same question whether they are generally very happy, "fairly happy or "not very happy with their subsistence/living. The answers trivially showed a very strong correlation with the income. But what was not trivial, is that the response rate turned out to be remarkably stable during a quarter of a century of study (10% - 50% - 40%, respectively), whereas the real income increased by 62% during this time. It seems, however, that the satisfaction is not primarily dependent on the absolute size, but on the relationship between one's real income with that of other people. In compliance with this, when, for example, Tibor Scitovsky deals from the point of view of economic psychology with people's material life conditions for him the matter is not just how wealthy or poor one is, but how strong is the degree of the inequality's relationship between those wealthy and poor. He states that in the modern socio-economic system the people establish some kind of public preference in the allocation of the property and of the income judged to be optimal. And when the government deals with the distribution of wealth and income so that itshould be modified to match that public preference than it provides a public service that belongs to the same public goods, such as, public transport, urban parks or the defense, Scitovsky argues. This not too trivial thinking considers that a fair distribution the public transport have in common that the public money is spent in both cases on a service where the personal taste differences disappear: your public transport is at the same time my public transport as well. The existing bus itineraries and schedules may fit better to your specific needs than to mines, but we share the same transport network, and there is no way to meet simultaneously your sympathy towards the buses and my antipathy against such vehicles. The same is true for the allocation issue: someones financial situation is better than others but the unequal distribution of income and wealth is the same, its degree is common for all of us. If the distribution system wish to adapt to the preferences of the community, it oughts to adapt to a consensus or compromise between different preferences.This psycho-economic logic of reasoning is unusual in that that the equitable distribution of social equality and inequality is not opposed here from the outside as some moral aspect to the economic aspects, but it is inherently one of these. The theoretical and empirical investigation, which concludes from the consumers' market behavior to their preferences, and then tries to define how well the production and distribution of goods and services fits to these preferences, may establish, how decision makers may at the relatively lowest cost to the relatively highest level satisfy the preferences all this is an integral part of the economics, Scitovsky argues.2For more details see Scitovsky, T.: Human desire and economic satisfaction: Essays on the frontiers of economics. Brighton, 1986, Wheatsheaf Books, 4.

In such a logical system of the reasoning fits my study, the results of the above-mentioned lecture presented to the Hungarian Academy of Sciences. The core of the interconnectedness I presented is complex and yet very simple: a triple rule. According to it in today's societies cotton together an even fantastic size of inequality and a high degree of equality.

If even an amazing degree of the wealth inequalities is associated with a much lower degree of income inequality;

if the latter is still at a great degree but accompanied by a more equal distribution of well-being;

Finally, if the latter is still not that equal but, however, associated with a full equality in dignity.

Dignity isn't hear a moral quality either, but a very serious psycho-economic factor defined by that part of the consumption which the people are not free to choose for getting themselves pleasure a welfare, but which is indispensable for the subsistence and not in a purely biological, animal but in one's human quality. On the triple rule of the equality / inequality there can be built such insights, which opposes itself to the practice claimed to be socialist that for establishing the society of people with dignity equal to each other created a population equalized with totally confiscated wealth. But it also rejects the actual restoration practice aiming a primary accumulation of capital and for that wealth inequality introducing an unheard-of dignity inequality between those in ostentatious affluence and the pauperized ones.Both socialism's, and capitalism's orthodox ideology has the same logic whenever it's about equality/inequality matter: this relation is considered as if it would be given as just one block. However, dealing with property, income, welfare or dignity can be quite separable from each other. And in everyday practice of both socialism and capitalism this separation is actually performed.While the formula named as "socialism" with respect to assets almost consistently stuck to the principle of equality, on the other hand, as to the income there was regularly organized campaigns against the "egalitarianism". And although the earnings dispersion was, however, not to become on a massive scale, however, there was established a system of free or reduced allocation in kind, which enabled it to social categories of beneficiaries whose income may barely rose above the social average, to enjoy a well-being that is significantly higher than the average. Finally, if the inequality in the well-being was still somehow limited according to the ideology of socialism the inequality of dignity which the nomenclature assigned to different people exceeded any mesure.The nomenclature used to be a system of lists that asigned both social competence that refered to the party more central or more peripheral management (to the Central Committee of the Party, to the Committee in Budapest, to any county, let alone to a district or, finally, only to the leadership of the job's party organization) having the scope, secondly, the people who come into play in terms of the powers in question.Whether one appears in a more central or more peripheral list, this circumstance strictly defines for him/her a higher or lower dignity, respectively, with the end values of this inequality defined, on one hand, by the personality cult surrounding the leader and, on the other, by the show trials against enemies of the people. Thus, the Bolshevik-type socialism3. The bureaucratic state governed by an illegal movement and The paradoxes of the Bolshevik-type psycho-social structure in economy in Garai, L.: Reconsidering Identity Economics - Human Well-Being and Governance. N. Y.: Palgrave Macmillan (forthcoming)

while all along insisted on the implementation of the program of a radical equality, implemented an unprecedented degree of inequality.On the other hand, the opposit formula, mentionned as "capitalism", also at the point of asset property stuck to his principles, according to which the inequality isdefinitelycontra-indicated to limit (because it can only be done at the expense of economic efficiency), but during its periodthat was being called welfare state limiting mesures of such an extent got inaugurated that previously was only known from various utopies. The best known among these limiting mesures was the highly progressive taxation. And, at that, its particular version, where the tax base got counted that way that the income per capita within the families was considered for its amount. This in turn has created an opportunity, so that in the lower income sector(s) negative taxes was imposed as a kind of social assistance. Thus reducing the high and increasing the low income fitted in an integrated system of limiting the inequality of incomes. In such a system the income originated from ones work (whether performed by employees or by libre entrepreneurs is comparable to that that are derived from the property. And by the same token, certain tax systems lay a lower tax rate on the income originated from the work than on that is derived from the property (this distinction has not much to do with socialist ideology, given that it used to be practiced not only by such a tax system as the Swedish but by the American as well.Of course, the income gap that does not disappear, even hundreds of times larger and several hundred times smaller incomes there could coexist imperturbably. To ensure this, however, the welfare state has taken various measures to limit the inequality of well-being that may arise from these income differences. To this end, the consumer tax was imposed in a differentiated manner: a much higher rate at luxury goods and services and much lower one to the lines of goods of mass consumption, investment assets or goods in common use. Here, too, could take place the "negative tax application: grant subsidies to such products or services the recourse to which is considered by the central or local government especiallyimportant. The industry and the commerce provided a specific device for a kind of equalization where most of commodities when introduced in the market was introduced in version for mass consumption and therefore much cheaper. As a result, between consumers there existed not a categorical difference between those who have and the ones who have not homes, cars, washing machines or personal computers, but a much less striking difference of those who possess better and others having a less good quality of a given line of goods. A slight decoupling of the well-being from the income is provided by the management of various organizations. Most organizations develop a system of allowances that give favor to some of the employees against all ranks, to all ranks as compared with those who do not belong to the organization, to the regular clientele against occasional clients. All these measures put together may not, of course, eliminate the inequality of well-being in society such a development has not been even envisaged by the contemporal societies. However, there are factors within the well-being that are rigorous conditions for a dignified existence. These terms include the indispensable minimum of the nutrition, clothing, housing, without which there can be no human existence, according to those public preferences for which we have seen the above arguments of Tibor Scitovsky.Over time, all expanded range of factors that was thought to be necessary conditions of human life and thought that they should equally be provided: many factors of schooling, health maintenance, transport, justice. It is enough to mention an only one case that in the US generated almost even no surprise, when a Michigan court judged 200 dollars for an accused to his clothes shopping, accepted the defender's argument that the accused person is through no fault badly dressed it plays very badly with the jury and so that would be a disadvantage when their decisions will be taken.


This episode, as well as similar others deserve respect. But because of their uniqueness they do not provide us any institutionalized implement for the disassociation of the dignity in accord with the recommendation of the triple rule for the equality/inequality management. For this rule's first storey we have seen the progressive taxation, for its second storey the parallel of luxury consumption and mass consumption as well as various practices of allowances within various organizations, with the strong restriction that each of these and similar institutional implements is applicable exclusively on its storey. But even with such a restriction what implement might be applied to the equality/inequality management concerning the third storey, that of the disassociation of the dignity from the well-being?In recent decades, it time and again appears as an idea whose institutional implementation could provide such an effective tool: the idea of Unconditional Basic Income (UBI).The history of the idea goes back to 1516 when she appeared in Thomas More utopia. Among other authors Charles Fourier, John Stuart Mill, Bertrand Russell was the idea of the XX. century. Then it just an underground stream, walked here and there, from one state of our globe to another without being an organized movement, long without even having any information from ech other.Until then that the in the 1980s there was formed, began to operate, then changed its name: BIEN this acronym was identified as Basic Income European Network at its inception, and Basic Income Earth Network some eight years later. It is the history of a stunningly persistent idea4See:

and of an extremely unviable idea at the same time, considering that for half thousand years there was found five when, between 1974 and 1979 a government, that of the province of Manitoba, Canada Dauphin city dared to test a pilot program based on this idea.5Evelyn L Forget: THE TOWN WITH NO POVERTY Using Health Administration Data to Revisit Outcomes of a Canadian Guaranteed Annual Income Field Experiment. UNIVERSITY OF MANITOBA, 2011 February. pp. 0-37. Another trial is being actually made by the local government of one of 23 districts of Budapest.

What could be the reason for this strange contradiction?The first of its premise is hardly necessary to substantiate: it is a well-known pattern of ideas' persevering within the cultural history. It is noteworthy, however, that when in 2013 there presented an official possibility in the EU to initiate that the European Commission put forward a carefully prepared proposal to the European Parliament to introduce the UBI in all of the 28 Member States, then instead of the required one million signatures to the petition (2 per thousand out of 500 million EU citizens) in one year 285,000 people (0.57 per thousand) was signed. Why so few wanted to give Europe the chance to be able to rid themselves of poverty of an inhumane depth?I would believe that one of its weighty reason was that the bid was not put this way, not in the context of economic psychology's triple rule. If instead the underwriters and non-underwriters of the petition would have believed that the removal of the equalizing of the well-being is at stake, or, even more, creating an income equality, and perhaps creating the wealth equality, while such an objective not only not very realistic, but that for a large majority is not even desirable. The mode of wording of what it is all about, it suggested time and at all whenever the UBI got mentioned, as if it was a question whether ought X bestow to Y, whether should the wealthy subsidize the destitute other, even though it is not about the quality of life of someone separate from the other one. Instead, the true question is that of the relation, namely the equality and inequality, and still more concretely the equality/inequality between wealthy and destitute, OR between those with high income and those with low one, OR between those whose standard of living is privileged and whoes is under privileged. And what is the most important, as far as the UBI is concerned: a strictly total identity in (and exclusively in) the dignity economics.How exiting for the society is the equality/inequality problem is vividly illustrated by the recent history of a book, to which it an almost uninteresting title tried originally to arouse interest: The Capital in XXI. century. Hardly from this title happened that the book of the young so far unknown economist, Thomas Piketty hit in tge head of the French book market that it has been in the US bestseller list the lead less than a year and another year's time, is now almost five million hits in Google search list. The theme of the book: the inequality. How is it still valid in the XXI. century, what was stated by Marx's Le Capital hundred and fifty years earlier: that the capitalist mode of production by force of its own internal laws makes those rich still richer and poor still poorer. That this trend is no longer valid, it got conviction not only for Marx's opponents, but even the former followers got also convinced about that by the emergence of the welfare states in the after WWII period. But the fact that the welfare states soon - after only thirty years of prosperity - are now gone, forced Piketty to reconsider if its validity did not come back to the old trend of further enrichment of richmen and pauperization of the paupers. He investigated in this respect the capitalist system from the XVIII. century to the present and the results of and this socio-economic study clearly convinced him as well as a fast-growing part of the fast-growing mass of his readers that may be the only answer to the question: But, of course, yes!But if this discovery was the motive for the enormous interest to the Piketty's book, what was then the motive for the enormous interest to his discovery? Dare I say that he would state that together with the justification of Marx's claim about the enrichment/pauperization matter the out the further part of that claim, about the capitalism revolutionary liquidation by the pauperized proletariat?By no means.However, there is something rather embarrassing in the overactive interest for the affairs of capitalism: it seems,even without such emergency scenarios bad times occurred for it Since the beginning of the crisis period even a highly respected liberal economist like Lawrence Summers supposed the possibility of a secular stagnation for the contemporary capitalism.And this is linked to our theme, the one of the growth of inequality by an inquiry that was ordered by the OECD6Cingano, F. (2014), Trends in Income Inequality and its Impact on Economic Growth, OECD Social, Employment and Migration Working Papers, No. 163, OECD Publishing. inquiry in effect confirmed that antecedent that was obtained during the long history of the social psychology (that was, for its part, the antecedent of economic psychology). In1998 in the very first laboratory experiment of the new-borned social psychology N. Triplett (The dynamogenic factors in pacemaking and competition.American Journal of Psychology,9, 507-533.) found out that when an activity was performed not individually, but by a mate, then there emerged a not-evoked, spontaneous competition and, hence a quicker pace-making. But furtherly, when repeating the experience, Triplett's findings was somehow, partially falsified. Finally, in 2005 M. J. Strube found what he then published under the title What did Triplett really find? A contemporary analysis of the first experiment in social psychology.(American Journal of Psychology,118, 271-286.): a competition followed by a quicker pace emerged only between individuals (or groups) without a big inequality, and the big inequality, contrariwised , provoked a slowdown.

. Its results demonstrated that the basic cause at least one chief causes of the long-term lack of economic growth is the growing inequality in society. And if this is so, then the expense that is aimed for undertaking a radical reduction of inequality, can not be described as social expenditure, as poor care, relief, as if it was a forced withdrawal of funds from the useful economic tasks. Following this argumentation one has to realize that spending is not aiming here the assistance to the deprived persons, but an investissment to the society as a whole: the radical reduction of inequality existing in the socio-economic system is one of the tasks of economic use in itself. And the use, which is driven by: ensuring the functioning of the socio-economic system and the sustainability of the solid economic growth.Hungarian economist Ferenc Janossy in a line of thought of his book7A gazdasgi fejlds trendvonala s a helyrelltsi peridusok (Trend of economic development and recovery periods in Hungarian). Budapest: Kzgazdasgi s Jogi Knyvkiad, 1966. pp 112113.

whose logic is applicable to this type of relationship is that "the stable factor of the economic development when it continued also during the recovery period after World War II as well is the humanity itself; not the individuals, but the human society as a whole, together with its all the experience, knowledge. The people - despite the really serious, almost immeasurable sacrifices - to this day not only survived all past wars (even the devastating cataclysm such as the Second World War), but almost completely preserveed what from the past was salvaged, the most important heritage is the accumulated experience and knowledge and those was in some areas even more enriched. (...) The manpower, this substantial bearer of the productive forces, though numerically reduced during the war, but its structure, its development not only survive, but will continue to grow incessantly. (...) And from this fact objectively follows that the trend line continues to rise steadily during the war and after. This conclusion, however, already contains the implicit assumption that the slope of the trend line is ultimately dependent on developments in the labor force. "When Jnossy mentions developing labor force (rather than simply given aptitude) and when he attributes to it the trend line slope, he performs not just discovering and describing the human capital practically at the same time as Theodore Schultz (although he couldn't give its name). But, in fact, he even exceeds Schultz with his formula running through the book, according to which it is not the individual but the human society as a whole, with all its experience, knowledge what it is all about. Meanwhile Schultz talks only of individual and his/her individual knowledge. F. Janossy here anticipates the way in which the same contexts are managed by the economic psychology, when it treats the human capital as an interconnectedness of two twin-factors, the knowledge and the social identity.In any case, from these contexts ensue compelling arguments in addition to what Piketty recommend as a treatment of inequalities: a highly progressive income tax with radically expanded bands and a no less radical relentless inheritance tax. Otherwise Piketty, a young professor of the Paris School of Economics, is not alone with this offer. Another young professor, this time from the London School of Economics, Gabriel Zucman presented a based on similar logic plan for the taxation of unimaginable magnitude wealth hidden to tax havens. And his book (entitled The Hidden Wealth of Nations, provocatively quoting Adam Smith) is as fantastically successfull, as the Piketty's: for after its publication with the University of Chicago Press it is forthcoming in further 13 publishers, from the French Seuil to the Taiwan Souler Creative. And still furtherly, the author uploaded the whole text to the Internet, in a spirit of a Western "glasnost": for assuring an appropriate participation of all the society in the determining how to reduce social inequality by the offshoring' indirect taxation.However, the arguments are valides also for two further steps of the triple rule of economic psychology. Thus, for the Unconditional Basic Income it is also true that the input in it serve not merely the interests of those humiliated by their miserable life conditions but the interests of the normal growth of the whole capitalist social-economic system.

*In conclusion, just a side note, since the comprehensive presentation of the topic requires further in-depth research, and with the toolbar of economics at that and not with that of economic psychology.The alternative of the secular stagnation" is imperatively shaped by a further tragic circumstance of our contemporary world. The split of this latter into an elite and a mass after the cancellation of the welfare state in the Reagan-Thatcher age there was not reproduced the formula of the nineteenth century with a proletariat that got forced in the production and out of the consumption of the same goods (Marx deduced the vision of an anti-capitalist revolution that would be motivated by just this contradiction). The new lower class, that of the XXI. century, is forced out of not merely consumption but out of production as well, since it is unqualified in an economic universe that needs highly qualified labour. And when it finds itself casted off by the factor of knowledge management, it may, however, be kept within the social word only by the other twin factor within the dealing with human capital: the social identity management. The application of the triple rule of economic psychology reduces the costs of such a manegement in our case, that of the growing inequality to a rather moderate level. If the capitalist societies don't take that amount of resources for keeping that treatment within the economy then the non-economic treatment of problem is again on the agenda, replaying the procedures of the twentieth century totalitarian states hideous toolbar (ghettoization , deportation , Gulag , Endlsung).

L. Garai: Inequalities' inequality or the triple rule of economic psychology .


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