The Economist spells out the message – inequality is bad for growth. And the growth they are talking about is plain old-fashioned GDP, not newer measures of happiness or well-being.
They are drawing on an IMF study assessing the causes and consequences of rising inequality. The IMF estimates:
- that a one percentage point increase in the income share of the top 20% will drag down growth by 0.08 percentage points over five years, while a rise in the income share of the bottom 20% actually boosts growth.
Some inequality is necessary to provide reward for effort; it’s a matter of finding the optimum balance.
This graph plots the change in income going to the top 1% against changes in the top marginal income tax rate:
Some countries, such as Japan, France and The Netherlands, have reduced top marginal taxation without increasing inequality. As usual, what is happening in the US and to a lesser extent in Britain is seen in a negative light.
It raises the question of what the ideal political economy should look like. Recently (see Quiggin’s post and document) a progressive alternative economic agenda is mysteriously emerging in time for Labor’s national conference:
- A new grassroots movement is underway which should demonstrate to next month’s ALP National Conference that there is strong community support for a progressive change to Australia’s cosy consensus-at-the-top that ‘markets are best’.
Instead of a public debate about the real drivers of and dangers to our economic and social security and prosperity, the focus continues on ‘more of the same’ extreme fetish for a Budget surplus, smaller government, lower taxes and ever more privatisation and deregulation.
A People’s Economic Alternative is emerging to call on Australians to engage with each other to devise a new economic direction which can overcome the ever-widening inequality and ever-greater insecurity that mark the lives of more and more people, and meet the challenge of ecological sustainability at a time of accelerating and unmitigated climate change.
A People’s Economic Alternative is an initiative of trade unions, welfare, community and political organisations. These organisations have memberships totalling over 300,000 and this is the basis for a new grassroots initiative to change the debate over the next two to three years.
The underpinning values are:
Equity; Fairness; Equality of opportunity; Recognition of the rights of future generations; Basic equality of outcomes, e.g. a living wage and dignified social support; Recognition of roles of both markets and government; Respect for science and education, e.g. economics is much more than a slogan like ‘markets rule’; People’s wellbeing is the ultimate objective, not profits.
Ten principles then follow, with the statement signed off by:
- Australian Manufacturing Workers Union National; Construction, Forestry, Mining & Energy Union; Finance Sector Union National, Maritime Union of Australia Sydney Branch; Fire Brigade Employees Union NSW Branch; National Tertiary Education Union NSW Branch; ALP Socialist Left NSW; Greens NSW; SEARCH Foundation; Evatt Foundation; F-Collective; No Westconnex Community Action Groups; Migrante Australia; AFTINET; Australian Political Economy Movement; Immigrant Women’s Speakout; Asian Women at Work.
The Economist says that:
- Inequality could impair growth if those with low incomes suffer poor health and low productivity as a result, or if, as evidence suggests, the poor struggle to finance investments in education.
This still views people according to their utility for producing goods and services within the narrow confines of the economic system. The concern is for more efficient workers.
Our vision should be that our life chances are not affected by the circumstances of our birth.
The Gonski education and National Disability Insurance schemes were essential pillars in building such a vision. The vision would also contain adequate funding for vocational and further eduction, support of science, research and development, a justice system available to all, accessible and cheap health and dental services, funding for the arts, the elimination of homelessness, plus pensions and transfer payments sufficient to allow a dignified existence for all. No doubt you can think of more.
The Gillard Government was active in some of these areas, but probably needed to expand the public sector by at least 10%. The Abbott/Hockey government seeks to punish the leaners, and to put the best gloss on it, depend on individual effort and responsibility. The poor are leaners, rather than lifters and characterised as indolent or worse.
In seeking an economy that serves society, rather than the reverse, the People’s Economic Alternative is trying to reverse a three decade’s long conventional wisdom about what constitutes good and credible economic policy.
More power to them!