Omelas is SalemO backwards. Salem, Oregon was once the site of the Oregon State Penitentary and the Oregon State Mental Hospital. As Ursula LeGuin is from Oregon I had learned, and believed that the word omelas was a statement about one of those institutions. Ms LeGuin was making a statement about the preservation of utopia by hiding away and ignoring certain elements of society. If that isnt a perfect description of a state mental hospital, I dont know what is.
The Oregon State Mental Hospital is also where Ken Kesey was working when he got the idea for One Flew Over the Cuckoo's Nest. Some of his notes from that time, and some drawings can be found in Ken Kesey's Garage Sale, a remarkably fun book.
"How we have made everything around us clear and free and easy and simple! how we have been able to give our senses a passport to everything superficial, our thoughts a divine desire for wanton leaps and wrong inferences! how from the beginning we have contrived to retain our ignorance in order to enjoy an almost inconceivable freedom, lack of scruple and caution, heartiness, and gaiety of life - in order to enjoy life! "
Friederich Nietzsche
Beyond Good and Evil