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Inclusive growth means poverty reduction and declining income inequality

I am doing some work on the way technology can be chosen to maximise employment in the pursuit of advancing general well-being. This is in the context of some work I am doing on advancing what is known as ‘relative pro-poor growth’ strategies in Africa via employment creation programs and draws on my earlier work in South Africa on the Expanded Public Works Program. In the current work, I have been assessing ways in which the Labour Intensive Public Works program in Ghana has been deployed to serve this purpose. The problem one confronts when working as a development economist in less well-off nations is that the institutional bias promoted by the IMF and the World Bank is towards advancing, at best, what we term ‘absolute pro-poor growth’. But that sort of agenda typically fails to strengthen other aspects of a strong civil society because it is almost always accompanied by rising inequality which continues to concentrate power and influence at the top and leads to resources being disproportionately expropriated by the wealthy (and usually foreign) classes. Institutions such as democracy, justice, law and order and causes such as environmental sustainability are then compromised.

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The GFC only temporarily interrupted the trend towards rising inequality

The UK Guardian Editorial ran a sub-header yesterday (January 21, 2018) “Democracies will fall under the spell of populists like Donald Trump if they fail to deal with the fallout of globalisation?”, which I thought reflected the misunderstandings that so-called progressive have about ‘globalisation’ and its impacts on the capacities of the sovereign state. The UK Guardian Editorial was responding to the release of the latest Oxfam report (released January 16, 2018) – An Economy for the 99%: It’s time to build a human economy that benefits everyone, not just the privileged few – timed to coincide with the gathering of “billionaires and corporate executives” at Davos this week. The Oxfam report reveals further staggering shifts in inequality across the globe, that the GFC barely interrupted. A major shift in political sentiment on the Left is needed to arrest these trends before they break out in destructive social instability.

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A lying government pushing economy towards recession and greater inequality

It is highly surreal listening to radio/TV commentators talking about government financial affairs (fiscal balance etc). These so-called experts are paraded before the nation and the script is generally the same. The interviewer who knows virtually nothing but has the key triggers on hand (‘budget repair’, ‘ratings downgrade’, etc ad nauseum) asks the ‘well respected expert’ about the state of affairs and the answers are always the same – fictional. This charade plays out almost daily but reaches a hysterical fever pitch at the time the Government releases its annual fiscal statement (May) or its Mid-Year Economic and Fiscal Outlook (December). The Government plays along with the charade releasing what it deems to be cleverly crafted documents, shifting revenue and spending across year lines to give one impression or another of the state of affairs. None of the charade is based on any fundamental economic understanding. None of it means anything other than a demonstration of a national scam to hide the truth from the ordinary citizen who for one reason or another relies on experts to summarise technical detail into meaningful sound bites. The nation then goes about its business in this cloud of ignorance, while the elites continue to suppress wages and living standards and march of with increasing shares of national income. They know what is going on and it is in their interests to keep the rest of us from having the same information. It is the same the world over. Well, here is what is going on with a framework that allows the reader to cut through the lies …

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Rising inequality and underconsumption

John Atkinson Hobson was an English economist in the second-half of the C19th and worked well into the C20th, dying at the age of 81 in 1940. I have been reflecting on his work in the context of wage and other labour market developments in recent years. Hobson, individually and with co-authors, provided some excellent insights into how rising income inequality, mass unemployment and increased poverty destabilises the economic system through its impacts on consumption spending. He argued that government should engender what he called a ‘high-wage economy’ which would provide the best basis for prosperity. He was writing as an antagonist to the trends of the day, which considered wage suppression to be good for business and society. In this blog, we consider some of those issues. This is a further instalment to the manuscript I am currently finalising with co-author, Italian journalist Thomas Fazi. The book, which will hopefully be out soon, traces the way the Left fell prey to what we call the globalisation myth and formed the view that the state has become powerless (or severely constrained) in the face of the transnational movements of goods and services and capital flows. This segment fits into Part 3 which focuses on ‘what is to be done’.

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Reducing income inequality

The recent political ructions such as the Brexit outcome in the UK, the popularity of Donald Trump and Bernie Sanders in the US, the growing extremist popularist movements in Europe and elsewhere, and the scrape-in victory of the incumbent conservative government in Australia at the recent federal elections, have been attributed in no small part to a growing resentment against rising income (and wealth) inequality. A ‘progressive manifesto’ has to address this issue and work out ways that the gap between real wages and productivity growth is eliminated so that workers can rely more on wages growth to fund their consumption growth rather than credit. This blog continues to discuss the elements of such a Manifesto and today we focus on the question of income inequality and ways in which productivity growth can be better shared.

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Rising urban inequality and segregation and the role of the state

Last week, 61.1 per cent of Dutch voters who turned out (the turnout was above the legal threshold to make the vote legal) voted against the referendum proposal to ratify a ‘preferential trade’ agreement between the European Union and Ukraine. It means that the Dutch government cannot, from a political perspective, ratify the EU initiative. It is the second time in its history that the Dutch have rejected a referendum about the EU – the last time was in 2005 when the EU Constitutional Treaty was soundly rejected. Then, the EU elites just ignored the democratic intent and bundled the initiative up into the Treaty of Lisbon and went about business as usual. Democracy is only useful to the EU elites if it ratifies their own self-interest. The same will happen this time. Merkel and Hollande have already said (in as many words) that they will disregard the Dutch outcome. The interpretations of last week’s voting outcome are now coming ‘fast and furious’ and the denialists are out in force – ‘oh, it doesn’t mean what it appears’ etc, and so the EU will just go about business as usual, as it always does, and that ‘culture’ is one of the reasons the whole European Project (now dominated by the common currency) is now proving to be an abject failure. It is a dysfunctional dystopia! Then citizens are watching the unfolding story from The Panama Papers, which only serve to confirm how top-level corruption, hypocrisy etc is rife and there is one (no) rule for them and another, harsher, binding rule for the rest of us. And, recent research findings suggest that our social settlements, where we live, bring up families, develop our aspirations and behaviours, are riven with rising inequality and increased segregation. Juxtapose that with the facts coming out about the urban backgrounds of young Belgians who achieve their aspirations by blowing themselves up and taking as many of us with them. The souls typically come from highly segregated urban enclaves in our cities with joblessness and poverty a daily burden. All of the above has been created by a neo-liberalism that works for the elites and aims to extract as much real income out of the system for the few as possible with as little democratic oversight as possible.

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Rising income and wealth inequality – 1% owns more than bottom 99%

This week is – Anti Poverty Week 2015 – in Australia and there are many events and happenings on to mark the time and to highlight the issue of poverty. I will be appearing on a panel on Wednesday afternoon in Newcastle (see below). I was thinking about what I might say in my short presentation next week as I read a report in the UK Guardian (October 17, 2015) – Wealth therapy tackles woes of the rich: ‘It’s really isolating to have lots of money’ – that appealed for sympathy from the rest of us for the top-end-of-town, who have to undergo psychological counselling because they are stressed out being wealthy. Apparently, they also have to engage in “stealth wealth” which means they “are hiding their wealth because they are concerned about negative judgment”. I immediately felt bad for them. Oh, the pain the top 1 per cent feel owning around 50 per cent of all the assets in the world! What a shocking plight they face. In the context of this week’s focus on Anti-Poverty, I couldn’t quite rouse the sympathy the story was seeking to elicit. Sorry!

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Too much private credit undermines growth and increases inequality

The OECD has just published a new Economic Policy Paper (June 2015) – Finance and Inclusive Growth – which challenges the notion that the financial market deregulation in the period prior to the GFC, which led to a rapid increase in the absolute and relative size of the financial sector, was beneficial. It argues that in the aftermath of the credit binge, with the private sector overladened with debt, further credit “expansion is likely to slow rather than boost growth”, particularly if taken up by households. The research also shows that “Financial expansion fuels greater income inequality” and that government needs to reform the sector to stabilise growth and reduce inequality. What the paper doesn’t say (it is the OECD after all) is that their research also undermines arguments that it is better to base growth on private debt accumulation rather than public debt accumulation which matches deficits. Thus strategies in place in Australia, the UK and the Eurozone for governments to pursue surpluses which then require the private sector to increase debt to drive consumption are fraught and will ultimately fail. Again!

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The rise of non-standard work undermines growth and increases inequality

One of the on-going themes that emerges from the neo-liberal commentariat is that fiscal deficits undermine the future of our children and their children because of the alleged higher implied tax burdens. The theme is without foundation given that each generation can choose its own tax structure, deficits are never paid back, and public spending can build essential long-lived infrastructure, which provides benefits that span many generations. The provision of a first-class public education system feeding into stable, skilled job structures is the best thing that a government can do for the future generations. Sadly, government policy is undermining the future generations but not in the way the neo-liberals would have us believe. One of my on-going themes is the the impact of entrenched youth unemployment, precarious work and degraded public infrastructure on the well-being and future prospects of society as neo-liberal austerity becomes the norm. This theme was reflected (if unintentionally) in a new report, release last week by the OECD – In It Together: Why Less Inequality Benefits All. The Report brings together a number of research findings and empirical facts that we all knew about but are stark when presented in one document.

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Rising inequality – fundamental changes required

I am currently working in Sri Lanka at a very interesting time in the nation’s history. Ten days ago the nation elected a new president and ousted the bevy of officials that had been linked to the previous, rather dictatorial and seemingly corrupt regime, that had held a iron grip on power for years. The daily newspapers in Colombo each day are now devoting multiple pages to discoveries that are coming to light about the ways of the previous regime. Some previous officials have had their passports confiscated amid rumours of other politicians and their families making quick getaways to Middle Eastern nations to avoid prosecution. Arrests are being made to roundup the corrupt former government officials. The editorial this morning said that the past government had allowed “a certain person, who was accused of corruption amounting to billions of rupees, to leave the country soon after the presidential election results were announced”. I guess everyone knows who Mr Certain Person is. There was a cute report about the discovery of a ‘double cab’ (truck) which had gone missing from the Presidential secretariat’s car pool being found hidden in a saw mill. What you find in the poorer nations is that the corruption is fairly transparent and crude in its implementation and is often enforced by a martial regime. In the more advanced nations, the corruption is more subtle and harder to detect. Oxfam’s latest report (January 19, 2015) – Wealth: Having It All and Wanting More – considers the manifestations of this corruption and its pervasive nature.

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Inequality and growth and well-being – revolutions have occurred for less

Canberra is Australia’s capital city – a created city located in the Australian Capital Territory (ACT) to house the federal government and its bureaucracy. Official – data – shows that in 2013, the ACT has the highest household incomes of any state/territory, the highest household net average net worth and is heavily dependent on its wage and salary income. It is now a focus of federal government employment cuts which are forcing thousands of workers onto the unemployment queue, with little prospect of alternative employment at this stage given the general state of the economy. Over the weekend, I saw a news segment which documented the increased access of Canberrans for emergency food relief over the last 12 months. More than 10 per cent of the population in one of the highest income per capita cities in the world are below the poverty line. How can that be?

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Growth and Inequality – Part 4

I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to publish the text sometime around mid-2014. Our (very incomplete) textbook homepage – Modern Monetary Theory and Practice – has draft chapters and contents etc in varying states of completion. Comments are always welcome. Note also that the text I post here is not intended to be a blog-style narrative but constitutes the drafting work I am doing – that is, the material posted will not represent the complete text. Further it will change as the drafting process evolves.

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Growth and Inequality – Part 3

I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to publish the text sometime around mid-2014. Our (very incomplete) textbook homepage – Modern Monetary Theory and Practice – has draft chapters and contents etc in varying states of completion. Comments are always welcome. Note also that the text I post here is not intended to be a blog-style narrative but constitutes the drafting work I am doing – that is, the material posted will not represent the complete text. Further it will change as the drafting process evolves.

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Growth and Inequality – Part 2

I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to publish the text sometime around mid-2014. Our (very incomplete) textbook homepage – Modern Monetary Theory and Practice – has draft chapters and contents etc in varying states of completion. Comments are always welcome. Note also that the text I post here is not intended to be a blog-style narrative but constitutes the drafting work I am doing – that is, the material posted will not represent the complete text. Further it will change as the drafting process evolves.

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Growth and Inequality – Part 1

I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to publish the text sometime around mid-2014. Our (very incomplete) textbook homepage – Modern Monetary Theory and Practice – has draft chapters and contents etc in varying states of completion. Comments are always welcome. Note also that the text I post here is not intended to be a blog-style narrative but constitutes the drafting work I am doing – that is, the material posted will not represent the complete text. Further it will change as the drafting process evolves.

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Wealth inequality rising slowly in Australia

The Australian Bureau of Statistics released the – Household Wealth and Wealth Distribution, Australia, 2011–12 – today, which is drawn from the bi-annual Survey of Income and Housing (SIH),first published in for 2003-04. My interest is in how the distributions changed during the period of the crisis and the fiscal stimulus. We are currently working on an update to our – Employment Vulnerability Index – which we hope to release sometime next week. The preliminary results suggest that the fiscal stimulus significantly reduced the risk of job loss in the period after the crisis. But more on that when we have analysed our results more carefully. Today’s data shows that wealth inequality is rising slowly in Australia but will accelerate if the proposals to further demolish the income support system and increase tax breaks for the wealthy are introduced after the next election.

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Fiscal policy should sustain full employment and reduce inequality

Sometimes there is serendipity in a researcher’s life. Usually not. But sometimes. The last few months I have been investigating the question of how to effectively design fiscal policy interventions. It is an important issue because there are multiple goals that need to be satisfied. Two clear goals can be identified to simplify matters. First, fiscal policy has to be designed and implemented in a way that ensures there is sufficient aggregate demand in the economy relative to its real productive capacity so that full employment is achieved and sustained. Second, it should be designed and implement so as to reduce inequality. The two goals are interdependent despite the myths that economics students learn about the trade-off between efficiency and equity. It is now clear that rising inequality harms the prospects for sustainable economic growth. The evidence is now starting to come in that during the neo-liberal era, fiscal policy was actively used to reduce its redistributive capacity and its capacity to reduce market-generated inequality was severely compromised. Not eliminated but substantially reduced. That is what this blog is about.

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Rising inequality demonstrates we haven’t learned much

I am now back on Terra Firma and have been greeted with beautiful Spring weather. Among the headlines I read when I returned to my office today were those predicting that the Greek economy will have shrunk by 25 per cent by 2013 and the Troika are demanding more cuts. What I learned from being in the lands of austerity over the last few weeks is that there is no coherent plan to salvage economic growth. Rather, the same economic policies that caused the crisis remain dominant. In saying that, I discount the trends in monetary policy including quantitative easing, which are crisis-specific, because they really don’t make much difference. What is apparent is that one of the pillars of social stability is now under threat. I refer to the deteriorating position of the middle class in the advanced nations. The latest data from the US supports the view that the inequality in income distributions continues to worsen. There is a hollowing out of the middle class continuing at a pace. This rising inequality demonstrates we haven’t learned much and are continuing to repeat the errors in policy that created the crisis and is preventing nations from leaving it behind.

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Inequality continues to rise in Australia

The ABS released the latest Household Income and Income Distribution, Australia data today which allows us to get a better understanding of how the national income is being distributed among individuals. The data released today provides information about what is known as the size or personal distribution of income (ignoring how the income was gained). The data confirms the trend that Australia is becoming more unequal with the bottom 20 per cent losing out to the top 20 per cent. The changes however are relatively modest.

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Puzzle: Has real wages growth outstripped productivity growth or not? – Part 2

Inspector Commissionaire Bill is back on the case today for Part 2 and the solution of the puzzle we posed in – Puzzle: Has real wages growth outstripped productivity growth or not? – Part 1 (November 20, 2019). The puzzle was relatively easy to understand. The RBA (Australia’s central bank) published analysis in its most recent – Statement on Monetary Policy (November 2019), which showed that since the early 2000s, real earnings per hour have been above hourly labour productivity. Yet, National accounts data and earnings-productivity data trends that I regularly publish show the opposite. So the puzzle is: How can the RBA say that workers enjoyed real wage increases above labour productivity growth in the early 2000s up to around 2012, when we know the wage share has been falling more or less over the entire period? In Part 1, we laid out the conceptual framework to help us understand what I am writing about today. The resolution is that both sides of the puzzle are correct in their own way. The issue comes down to measurement and this two-part series demonstrates, very powerfully, how perceptions that are shaped by the presentation of data (graph, tables, etc) rarely come to grips with the underlying methods used to construct the presentations. We have all heard the phrase – There are three kinds of lies: lies, damned lies, and statistics. By becoming more educated about how to use statistics, we can all break that nexus and deploy data more reasonably to advance our cases. That is what this two-part blog series is about.

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