The Wealth Delusion

How do we know when enough is enough?

Writing in 1931, the great economist, John Maynard Keynes, thought the major problem of this generation (that of his possible grandchildren) would be how to entertain ourselves, how to live ‘wisely and agreeably and well’ because he thought ‘the economic problem’ would have been solved: we would have enough material goods.  He was talking about Europe, not the poor colonies, of course.

And we do have enough: for example, average income in the UK is  around £25,000 or nearly three times the world average, and 60 times that in Afghanistan. We have enough, but Afghanistan and  most developing countries clearly do not.  That we have enough is shown by surveys showing we – in rich countries – don’t get happier when we get richer.

More important is the environmental issue: growth eats up the world’s resources and generates carbon with seemingly inevitable and catastrophic effects on the climate.

There is a simple tautology:  world carbon use depends on the size of the global population multiplied by the amount of carbon required to generate output (or income) – depending on the available technology – multiplied by income per head.  We are already at the edge of the precipice in terms of the safe amount of carbon in the atmosphere. To save ourselves and secure and sustain a planet which is livable in we have to work on all three variables in the tautology: there are limits to changes in population growth over the medium term, although the rate of increase of world population is decelerating; and we are making some progress in developing and adopting new carbon-saving techniques, but not nearly enough to ensure a sustainable planet. That leaves growth in output. World growth has to slow down.  Yet clearly this slowdown should not come from poor countries that need growth to reach tolerable living standards for all. Given that the world has a limited amount of resources, we must share them fairly across the global population.

We in the rich countries could well be satisfied with what we have now (augmented over time through non-carbon using technological progress), especially given that increasing incomes are not making us happier. Yet any such slowdown in the growth rate of rich countries will not be possible or acceptable if we continue to have the present unequal distribution of incomes.

In rich countries, for the mass of the population the main motive for accumulating more income is to catch up with richer people and enjoy their life styles. So long as the incomes and consumption of the elite continue to rise – often involving new and fancy products – then all those on lower incomes will want more too. But it’s a treadmill. With inequality, especially if it’s rising, people never do catch up.  Moreover, with high and rising inequality, we can’t solve problems of poverty in our own societies without higher incomes.

In addition, poor countries too are motivated by wanting to catch up with rich countries; so long as rich country standards are rising the catch up gets more and more difficult and requires more and more growth.  And within poorer countries, the same catch-up motive applies as within richer countries. But here growth is more urgently needed, since so many have such low incomes that they are living abysmal lives.

In short we have a system that makes growth an imperative; but this growth involves huge environmental threats and doesn’t improve our real well-being. To counter this we need a radical redistribution of income, within countries and between them.

The world average income is around $15,000, the same as the income of Costa Rica. My research shows that Costa Rica is one of the only countries in the world that does well on the main dimensions of development: economy, human development, social relations and the environment, although even there there is considerable inequality. Go to Costa Rica and see how we could live well and within the world’s safe environmental limits.

Of course, to equalise the world’s income across countries, groups and people is a big ask. But we should make a start.  

For this we should adopt a world wealth tax; proper taxation of global corporations which would generate revenue for developing countries equivalent to doubling aid; high marginal taxes on incomes – Tony Atkinson has suggested a rate of 65%; rising minimum wages and a maximum level for salaries; and effective and high inheritance taxes among other policies.

The major challenge is of course political.

Keynes believed that once we had enough material goods: ‘love of money’ would be ‘recognised for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental diseases’.

Unfortunately, this has not happened, yet the ‘love of money’ now has an even more threatening dimension, that of precipitating the world into an environmental maelstrom.  Knowing this, even though we are not the generation that has learnt to live agreeably, wisely and well, we should be brave enough and responsible enough to take radical action.



Image credit: Bank of England

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