The Spirit Level, social inequality and tax avoidance

There’s a new book out, "The Spirit Level", on why growing inequality in the UK is so bad for health, education, life expectancy and so on. (The Guardian's interview with the authors is here.) I haven’t read The Spirit Level, but I found it odd that the interview ignored the way in which financial inequality has proved fatal for the economy itself. John Kenneth Galbraith believed that the yawning financial inequality in the USA in the late 1920s was one of the key reasons for the 1929 stock market crash. And while it took a long time for social inequality to get back to those levels, it certainly did by 2008, just in time to help spark off a crash that could prove to be even more profound.

Reasons being: Extremely rich individuals stop spending on the main drivers of the economy (there’s only so many vacuum cleaners and sofas they need), and push a disproportionate amount of money into absurdities like yachts and jets which only make rich people richer. The very rich also stop investing in new, sustainable business ideas, going for quick win, unsustainable investments like property instead. And finally, they lose touch with reality and start speculating wildly and incautiously on dodgy investment vehicles designed purely to exploit their greed and recklessness.

And, of course, a vital factor in creating financial and social inequality is … tax avoidance … as, no matter what the tax avoidance propaganda says, it seldom enriches anyone but company directors and the highly paid tax avoidance industry. Crack one nut and a lot of good can come from it.