Morality or inequality?

David Marquand has written about the current political and economic crisis. He locates it in the failure of neo-liberalism as a model of political economy and is perceptive when he links both the banking crisis and the expenses scandal to a crisis in the legitimacy of the state.

For the crisis of the economy is also a crisis of the state. Democratic Europe's miraculous recovery from the traumas of total war, genocide and defeat was underpinned by a tacit social contract between states and peoples. The state guaranteed full employment, rising living standards and social protection. In return, the peoples gave the states their loyalty. The contract was embedded most firmly in the social democracies of northern Europe and the social market economies of Germany and her neighbours. But there were local variations in France, Italy and the United Kingdom.

Now the state has been forced to renege on its part of the bargain. Full employment is no more, ­living ­standards are falling, and social ­protection is under threat. The rising tide of bitterness and anger that swept through ­London's G20 protests, and which has now broken over the heads of MPs – worthy as well as unworthy – is the result. But that is only its local, ­British manifestation. All over Europe, the people feel that the state has betrayed them. They don't know why or how, and they haven't yet found an effective way to vent their anger. But they do sense that they have been let down. And they are right.

However, he then takes one step further into the notion of a moral economy. I am more familiar with the concept as elaborated by the historian E P Thompson, who saw it as a popular view of a just moral economic order, enforced by ordinary people through custom and riot. Marquand draws on this but adds to it something that is much closer to the morality of 19th Century Christian socialism.

According to it, the unhindered, ­rationally calculated ­pursuit of ­individual self interest in free, competitive markets was not just economically efficient, but also morally right.

This provided a convenient self-justification to the rich that their vast earnings were theirs as of right. However, Marquand sees this as morally corrupting of the less well off as well.

House owners who gambled on ever-­rising house prices and took out mortgages they could not afford; credit card holders who borrowed more than they could realistically expect to pay back because realism that conflicted with immediate gratification had come to seem quaint and old-fashioned; and voters who thought they were morally entitled to ever-rising living standards without effort on their part, were all playing at the gaming tables of the ­neoliberals' casino capitalism.

It is an old trope, you can find it in Tolstoy for instance, but something still jarred with me when I read it. Then I heard an interview about some new research on BBC radio this morning. The TUC's ToUChstone blog has published a new pamphlet, Life in the Middle (pdf). It is an interesting pamphlet that argues that the political emphasis on winning the votes of 'Middle Britain' has been distorted by the use of mean, rather than median, income as the identifier of who is in the middle of the income range. As a result,

...the term ‘Middle England’ – more commonly ‘Middle Britain’ now – has changed its meaning over the years in the minds of politicians and journalists to mean a group that sits not in the middle but in the upper half of the income distribution. Middle Britain has become shorthand for the conservative, well-to do citizen. Subtly and gradually, it is this different Middle Britain that has come to dominate cultural and political debate.

Now, what the pamphlet argues is that their research shows that if you restore the meaning of Middle Britain to those literally at the median point of national earnings you will see that they have seen a real decline in their incomes. This wealth gap has been bridged by credit. So, according to the research, the growth in consumer credit is not about instant gratification, nor is it about a "moral entitlement to ever-rising living standards", it is about maintaining living standards in the face of falling real income, despite a vast increase in national wealth. Credit is a function of inequality and it is this that lies at the heart of the banking failures of today.

I am not a good enough economist to be able to judge the merits of the research, but I do still have my own concept of a moral economy and it is an egalitarian one. The pamphlet is another affirmation of my belief that New Labour's abandonment of an egalitarian political economy was a social, political and economic mistake of the first order and one for which they may be about to pay a heavy price at the polls.

In the meantime, if you want to know where you stand in the earnings league, try this neat widget from the TUC.