Inequalities' inequality

or the triple rule of economic psychology*

Twenty-two years ago at the Hungarian Academy of Sciences I delivered a paper about the
economic psychology of the equality and inequality.1 I studied for a good while 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 it should 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
* A chapter of the monograph Reconsidering Identity Economics Human Well-Being and Governance. N. Y.:
Palgrave Macmillan (forthcoming).
1 The 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.
https://www.academia.edu/7524150/Ne_rvnyesljn_erklcsi_szempont_a_gazdasagin_kivul
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relatively lowest cost to the relatively highest level satisfy the preferences all this is an integral
part of the economics, Scitovsky argues.2
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 wellbeing;

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 while all along
2 For more details see Scitovsky, T.: Human desire and economic satisfaction: Essays on the frontiers of economics.
Brighton, 1986, Wheatsheaf Books, 4.
3 . The bureaucratic state governed by an illegal movement and The paradoxes of the Bolshevik-type psychosocial structure in economy in Garai, L.: Reconsidering Identity Economics - Human Well-Being and Governance.
N. Y.: Palgrave Macmillan (forthcoming)

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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 is definitely contra-indicated to
limit (because it can only be done at the expense of economic efficiency), but during its period that
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 especially important. 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
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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 idea4 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.5
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
4 See: http://www.basicincome.org/
5 Evelyn 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.
http://public.econ.duke.edu/~erw/197/forget-cea%20(2).pdf Another trial is being actually made by the local
government of one of 23 districts of Budapest.

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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 OECD6. 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 book7 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
6 Cingano, F. (2014), Trends in Income Inequality and its Impact on Economic Growth, OECD Social, Employment
and Migration Working Papers, No. 163, OECD Publishing. http://dx.doi.org/10.1787/5jxrjncwxv6j
This 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.
7 A gazdasgi fejlds trendvonala s a helyrelltsi peridusok (Trend of economic development and recovery
periods in Hungarian). Budapest: Kzgazdasgi s Jogi Knyvkiad, 1966. pp 112113.
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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
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on the agenda, replaying the procedures of the twentieth century totalitarian states hideous toolbar
(ghettoization , deportation , Gulag , Endlsung).

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