Well, yes, OK

We know that money buys freedom but we cannot simply maximise freedom by giving people more money. The only result would be inflation. Better is to maximise disposable income for everyone—net income minus essential spend on basic subsistence, housing and energy (rents that act as a drag on productive activity).

Increasing disposable income for the whole of society opens up choices—including ones that GDP cannot measure, for example to do more in the community or spend more time with the kids. Disposable income changes the focus towards productive economic activity rather than wealth extraction. Investment in housing, sustainable energy, and transport infrastructure provide the foundation for a freer society where we are enabled to pursue a productive life.

A second key ingredient in choosing the right metric is to use median measures rather than a crude average (or mean). To see the difference, imagine a football team where one player is earning one million pounds per week and the other ten earn one hundred. The average salary is close to half a million whereas the median income is only one hundred. If the pay of the star player is increased to two million then average income doubles while median incomes remains almost the same. By optimising median income we optimise the distribution such that everyone can be maximally economically active. The importance of using the median measure is discussed on Jonathan Andreas’ medianism blog.

If political-economy is to be of any use, it should not just try to understand the world but also try to improve it. Progress implies that something should be optimised. The GDP money-metric is a crude goal for life, better to maximise median disposable income, first by addressing the optimal distribution and second by provision of universal basic services (health, education, housing, and transport). By switching away from GDP to median disposable income we get closer to maximising freedom, and that matters.

However, given the way that real world economies work we find that higher GDP does translate through into higher median disposable incomes. Perhaps not at the margins, the 5 or 10% differences between two economies, but most certainly over time and relating to any large differences in GDP. Median disposable income is higher in 2017 Britain than 1950 Britain? In 2017 Britain that 2017 DRC Congo? GDP tracking that really quite well, even if not exactly.

16 comments on “Well, yes, OK

  1. Better is to maximise disposable income for everyone

    Yes please!

    Increasing disposable income for the whole of society

    Which of course isn’t the same thing at all.

    By optimising median income we optimise the distribution such that everyone can be maximally economically active.

    So the idea is simply to tax those above the median and redistribute to those below with a moving target -the median- as the exciting innovation. Hooray.

  2. To see the difference, imagine a football team where one player is earning one million pounds per week and the other ten earn one hundred. The average salary is close to half a million whereas the median income is only one hundred.

    Hmm, isn’t the weekly average 91,000, not 500,000?

  3. Disposable income changes the focus towards productive economic activity rather than wealth extraction

    Could someone sanity check me – I think this is where the error in the argument is. They’re confusing cause and effect. If people have disposable income, then not all production is going to Essential Requirements. Disposable income is a sign that production activities have already shifted, and is the measure of the size of the shift.

    They are conflating the measure of the effect with the cause of the effect. Increased disposable income is the sign of complete basic needs, not the thing shifting production away from basic needs.

    Or am I being crazy?

  4. Disposable income changes the focus towards productive economic activity rather than wealth extraction. Investment in housing, sustainable energy, and transport infrastructure provide the foundation for a freer society where we are enabled to pursue a productive life.

    Is it just me or does this article assume “disposable income” means “government spending”? Investment in sustainable energy? Not something I am likely to do. Transport infrastructure? A favorite for the Statists. Even housing may well refer to council housing.

  5. Tim is quick to pick up on other people’s mistakes in expressing themselves.
    Income less tax is net income is disposable income: after paying for essentials surely what is left is disposable income.

  6. KJP: being competent at picking up other people’s mistakes in expressing themselves, I would respectfully suggest that when you write “Income less tax is net income is disposable income” you are not expressing yourself in a way Tim might approve.

  7. “Income less tax is net income” true, but is not disposable income. Disposable income is that income that I can freely chose what to spend it on, that income I can dispose of at my leisure. I can’t chose whether to pay my mortgage/rent or not. Disposable income is gross income minus non-negotiable outgoings.

  8. Of course all the rents and property expenses you have to pay are non-negotiable by definition and detract from real demand in the economy .But not in post Thatcher Britain where fucking great rents and land value inflation are seen as GDP enhancers.
    And so it goes on: wages down; prices, particularly rents and house prices, up = slow torture.
    All those who approve of state economic torture should consider the referendum. People vote, not in a majority,to rid themselves of one possible source of the economic distress.As soon as the vote’s in, the up-themselves dimwits of the Tory party rush to secure the majority’s often racist votes and call a General Election .The suffering people take one look at Corbyn’s carefully costed Socialist manifesto and indicate that this is a better solution to their ills giving the thumbs down to hard Brexit.Theresa May has no mandate for Brexit because the fundamental problem of no demand in the economy remains unaddressed.
    The country is ungovernable in political and economic terms not just because of the inadequacy and incompetence of politicians but because of the mendacity of the establishment and the country’s institutions, particularly the Economics profession and even the language. What is free about our free press ?
    No hope.

  9. Dec 3rd – not just a full moon but the only “supermooon” in 2017

    Dec 4th – DNR has broken out and gives us Corbyn’s carefully costed Socialist manifesto.

    Nurse!

  10. ‘Increasing disposable income for the whole of society opens up choices—including ones that GDP cannot measure, for example to do more in the community or spend more time with the kids.’

    I choose to spend more time at the golf course.

  11. ‘We know that money buys freedom’

    We do???

    ‘It is accepted that Gross Domestic Product (GDP) is not fit for purpose, especially in this age of climate change.’

    Depends on the purpose. Your purpose, actually. It doesn’t do what YOU want it to do. So what?

    ‘By switching away from GDP to median disposable income we get closer to maximising freedom, and that matters.’

    Word salad. What bloke is going to feel more freedom (sic) if you start using median disposable income? You are irrelevant to freedom. And to blokes.

  12. Try and keep the shite level down Reedy–or you will drown in your own mental sewage.

    The mandate for Brexit is fuckall to do with a Remainiac BluLabour cretin like The Fish Faced Cow.

    It was given by people like me to get our lives back–or make a start on that process: still our own native red scum like you to destroy.

    The West’s economic problems are caused by scummy statism and socialism that you moronically advocate. And as for Corbin’s “costed” plan–WTF,WTF.WTF????? 100 Billion to pay off the stupidity of fuckwits after sociology degrees? When the evil old cunt had no fucking idea where the cash was coming from–or more to the point who was going to have to pony it up.

    I see little hope of any kind of sanity ever getting through your thick cranium Reed. Your carcass needs to be thrown in a skip socialism-style. I know it is wrong to sink to the level of the murdering evil that is socialism. But in the face of the intractable and impenetrable wickedness and deliberate and wilful stupidity such as exists between your ears , I am hard-pressed to think of any other viable solution.

Leave a Reply

Name and email are required. Your email address will not be published.