This is a pretty awesome article in the Guardian by Stewart Lansley, Why economic inequality lead to collapse. He’s the author of The Cost of Inequality: Three Decades of the Super-Rich and the Economy, published by Gibson Square, which sounds like something I should read. This is the sort of thing that always fascinates me – the economic bug that I’ve had to scratch at all my life.

It reminds me of when I was working in a deli in a shopping centre foodhall, my part time job while I did my economics degree. Exhausted on a 15 minute break, I doodled on a piece of paper trying to draw the appropriate graph for the relationship between hours worked and consumption demand. I figured I was spending so much time either at uni or working part time that despite earning money I didn’t get the time and didn’t have the energy to spend it. It was a curiously shaped curve I reasoned. To a point, working more hours and earning more money rapidly increased how much you would buy, but then I reasoned the curve would flattened out. If you’re spending all your time working, you just can’t spend. You need leisure to buy. An economy needs people to have time off. Money should buy that, but it wasn’t happening.

I didn’t envisage at the time what a huge part of people’s lives consuming would become or how we would build palaces to purchasing, as that same shopping centre in Melbourne’s east has become. Or how the internet would erode it.

But there was another side to my plastic table top tallying that I realised back then, that the extra income that got earned through all those increased hours of work didn’t get spent, it sat around and was in effect far less productive for the economy as a whole. My economic textbooks preached that this was vital to economic growth as money in excess of consumption would be ‘saved’ so that banks could then ‘lend it’ or invest it with other economic actors who would generate more economic activity – i.e. jobs and thereby wages and thereby consumers. In retrospect that puts an awful lot of responsibility and wisdom on banks, unjustified as it turns out.

But as this article points out – when a very small number of people are vastly more wealthy than everyone else, a lot of the potential of the economy inevitable lies dormant. There are only so many sports cars, planes and houses you can buy, so much time you can spend in hotels and on holiday.

Societies have economies in order to provide for people’s needs. Markets are expected to allow people to trade what they have for other things they want and need. They require movement. Free markets are also fundamentally driven to provide balance, equilibrium.

Capitalist markets are a harsh and difficult yoke that create considerable human misery, but none the less their purpose is hailed to be a ‘good’, that is they provide an economically-defined efficient means to match wants and needs at the most competitive, least profitable level. When they’re ‘theoretically perfect’ the manufacturer and seller are at no greater advantage than the purchaser.

The notion of equilibrium applies to labour ie. employers and employees, ie. sellers and consumers ie citizens rich and poor, as much as it does to bananas and televisions – and it theoretically applies to societies too. It seems hard to argue that inequality is not economically inefficient and unsustainable in a market economy. But then the proponents of deregulation, of market fundamentalism and neo-cons have always picked and chosen the bits of economic theory that suited the power elites best, haven’t they?