Inequality in the OECD: causes and policy responses

Inequality has become a ‘big’ topic in recent years, of concern both to economists and the public at large. This is exemplified by the popularity of Thomas Piketty’s Capital in the Twenty-First Century, and many other works. I have written on some of these studies here.

They continue to be churned out: in the July issue of the heterodox Cambridge Journal of Economics, Pasquale Tridico of Roma Tre University analyses the determinants of income inequality in 25 OECD countries between 1990 and 2013. He finds that ‘financialisation’, increased labour market flexibility, the declining influence of trade unions and welfare state retrenchment have been key to its rise.

When other factors such as economic growth, technological change, globalization and unemployment are taken into account, the above four causes remain important, and, to the extent that they can be changed as a matter of policy, they can mitigate inequality without harming economic growth. They are therefore not the full story but, for example, the negative effects of rising unemployment on inequality can be reduced if there is a strong social safety net in place.

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Mark Blyth on Bernie and Scandinavian welfare

Another clip from the engaging Professor Mark Blyth. Here he shares his thoughts on taxes, public spending and welfare in Scandinavia. He paints a positive picture, but admits that he wouldn’t want to live there and finds it ‘boring’, because ‘everything works!’

Thoughts on welfare-ism and nationalism

Robert Anton Wilson’s Prometheus Rising is a book which tries to make sense of how the human mind works, how to make it work better, and the implications for human development, from the past through the present to the future. It is in part a work of social philosophy, and is truly enlightening about humanity, containing plenty of thought-provoking insights. Here is one which I think is relevant to this blog:

“Welfare-ism, socialism, totalitarianism, etc. represent attempts, in varying degrees of rationality and hysteria, to re-create the tribal bond by making the State stand-in for the gene pool. Conservatives who claim that no form of Welfare is tolerable to them are asking that people live with total bio-survival anxiety and anomie combined with terror. The conservatives, of course, vaguely recognize this and ask for “local charity” to replace State Welfare – ie.,, they ask for the gene-pool to be restored by magic, among people (denizens of a typical city) who are not genetically related at all.”

This is surely right, but for me there is no alternative to some form of welfare state under capitalism, if some of its worst aspects are to be mitigated. Some sort of middle way is preferable to political extremes which have historically been associated with repression and a widespread disregard for human life in the pursuit of ideological purity.

Ha-Joon Chang on austerity and corporate vs social welfare

Here is a useful five minute interview on the Guardian website with Cambridge economist Ha-Joon Chang, bestselling author of 23 Things They Don’t Tell You About Capitalism, which is very readable and full of interesting and iconoclastic ideas. I have discussed some of Chang’s ideas on this blog in the past. Here he punctures a few myths about the recent direction of economic policy in the UK.

False economies at the heart of austerity

Homeless in Bangkok. Original by BrokenSphere

Many governments around the world shifted to a policy of austerity after the financial crisis led to large rises in public deficits. There is often much talk about its necessity in restoring ‘confidence’ and ‘living within our means’, as well as its potentially damaging effects on growth. But there has been less comment on the problems of cutting spending in particular areas, only to see it rise in others, thus making significant reductions in the deficit harder.

The labour market of fear (Ha-Joon Chang’s Thing 21)

William Beveridge

Is job insecurity necessary for good economic performance? Since the 1980s, governments across the world have been advised to make labour markets more ‘flexible’. Hiring and firing have been made easier; legislation (along with deindustrialisation) has weakened trade unions’ influence on wages and working conditions; privatisation and the contracting-out of employment have strengthened the hand of employers, to the detriment of the lowest earners; the scope of the welfare state has been reduced, although the extent of this has varied between countries.

This mixture of government policies, and structural change driven by advancing technology, have arguably increased job insecurity for millions of workers in rich and poor countries over the last three decades. This is a big change from the world of the post-war period, when the economist William Beveridge helped to create the welfare state and the conditions for full employment in the UK. He argued that government policies for full employment would remove the threat of the sack as a disciplining device for the workforce, and strengthen workers’ bargaining power in the labour market. This represented a fundamental change, but Beveridge was optimistic that it would not be a problem.

Building bridges between left and right on policy

One of the basic tenets of Keynesian economics is the importance of aggregate demand or spending in the economy for the purposes of supporting growth and employment. This spending takes the form of consumption and investment in the private, public and foreign sectors for an economy open to international flows of trade and investment.