Picture Puzzle

Inequality-V-Debt
Sources: Left Irish Left Review, Right IMF

OK it’s way past my bedtime but I couldn’t resist showing you this. I was researching something when I was struck by the similarity between these two diagrams. On the left we have income inequality – roughly speaking, the difference between the richest and the poorest fifth of each society. On the right we have the amount of debt that countries across the EU have gotten into in the last few years.

Broadly speaking, it’s the most unequal countries that are also the most indebted. How does that happen? The ‘liberalisation’ of many economies in the past decades was ostensibly meant to make them richer. The effect though has been very different. Low-tax countries are having to borrow in order to meet expenditure, particularly when times get tough. Meanwhile their lack of redistribution means that citizens are encouraged to borrow in order to compete socially – sometimes even to meet basic expenses. This private indebtedness tends quickly to become public when lenders collapse.

In short, trickle-down economics is really trickle-away. Though a minority of individuals within them are of course better off, countries that cut back on tax and expenditure end up impoverished over all. People seem to vote for such policies in the optimistic hope that they will somehow get into that ever smaller, ever richer minority. The odds suggest that they should buy lottery tickets instead.

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