Prophetic words on today’s economic and political trends

599px-The_Blue_MarbleThese words were written twenty years ago by distinguished Cambridge economist, the late Ajit Singh, and are somewhat prophetic on the evolution of the world economy and the causes of today’s political trends.

He compares the situation in the 1990s with the ‘Golden Age’ of capitalism during the 1950s and 60s, which saw rapid growth, low unemployment, and rising wages for the majority in many countries. He puts this down to broadly Keynesian interventionism by the state in cooperation with employers and trade unions. This was more effective in some countries than others. Nevertheless, he predicts that unless such conditions are restored, and the benefits of globalization are spread more widely through deliberate policy, the liberal international order will lose its legitimacy and prove unsustainable. I could argue with some of this, as I am not a fully convinced Keynesian, but the broad theme is telling. And so it goes…   Continue reading

‘In the end, policies are decided on the street’

ha-joon-changIn this short video, which is (slightly annoyingly) only available directly on YouTube, development economist Ha-Joon Chang chats about a range of economic and political issues. He covers industrial policy, free-market ideology, the UN’s Millennium Development Goals (MDGs) and China.

I am a fan of Chang’s often iconoclastic work, and he has written a number of excellent non-academic books for the intelligent reader, including Bad Samaritans, 23 Things They Don’t Tell You About Capitalism, and Economics: The User’s Guide.

Wage falls in the UK as ordinary workers suffer since the recession

workersEvidence here, once more from the UK’s TUC (Trades Union Congress) that real wages here fell by 10.4% between 2007 and 2015; in other words, since the financial crisis and recession. This is the worst record in the group of rich OECD countries and roughly the same as Greece.

On the bright side, employment growth has been relatively strong in recent years, although putting the two together suggests that a large proportion of the jobs created pay low wages. This means that job creation is less likely to reduce poverty for those already struggling.

As I have written previously, strong population growth has flattered the GDP growth figures so that per capita growth in incomes and output has been poor since the recession.

Stagnant or falling wages should boost the profits of firms, at least for a while, which could feed through into rising investment, which is necessary for productivity growth. But if real wages do not at some point pick up, then the only way that consumption can grow is for people to take on more debt, which will eventually prove unsustainable, especially from today’s already high levels.

Of course, the government will put a positive spin on the figures by distracting from them with the employment figures and overall GDP growth rather than the per capita evidence. But the picture is clear. We have a lot of ground to make up on productivity and real wages compared with our fellow OECD members and it is these variables which play a big role in determining living standards.

The tragedy of poverty in the US

screen_shot_2015-03-20_at_5.37.29_pmThe largest economy in the world. A technological leader in many industries. Land of the free. Despite all this, poverty in the US remains widespread, affecting about one in seven people, according to the International Monetary Fund (IMF) and as reported by the BBC here.

Growth by itself is not enough. If it is not more equitable and accompanied by rising productivity, then there is no scope for wages to rise even as profits are maintained. Without rising wages for the majority alongside continued strong employment growth, the most vulnerable will continue to face exclusion. No wonder populism and the rejection of some of the elements of globalization (free movement of goods, services, capital and labour) have been on the increase.

The failure of trickle-down economics

The chart below shows that while inequality in the UK rose under Thatcher, the poorest families saw virtually no increase in their disposable income over the same period. So much for the theory that making the rich richer will make everyone else richer too.

Under Tony Blair, inequality stabilised, but the incomes of the poorest rose significantly. Both these trends were due to redistribution through the tax system. Had the government not intervened, inequality would have risen further and the poorest would have seen far less improvement in their incomes.

The current government is about to cut tax credits significantly, which will hit the poorest the hardest once again. So much for compassionate conservatism.

Utopia, you are standing in it!

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