Polly discussing economics: not going to turn out well, is it?

GDP statistics benchmark \”us\” against other countries

No, they don\’t. We don\’t report GDP as \”UK GDP is 98.5% of French GDP\” or any other such comparison.

What we actually do is add up all of the market economic activity in the UK, adjust for government and foreign trade, then produce a number.

There is no benchmarking, no comparison with other countries. It is an exercise, purely, in measuring economic activity in the UK.

Doesn\’t mean it\’s perfect, even the inventor, Simon Kuznets, agreed that there are all sorts of problems with it: it doesn\’t measure non-market activity, it doesn\’t measure the distribution of the production and so on. But it\’s useful as long as we recall what is actually being measured.

As shorthand: how big is the pie?

So average GDP growth figures disguise how money has trickled upwards from bottom to top over three decades – the years since the Thatcher insurgency.

As above, GDP figures do not show the distribution, Polly\’s right. But there has been no upwards trickle over the last three decades. It simply isn\’t true that the poor are poorer than they were in 1981. Nor are the working poor, the squeezed middle, the middle classes, the mean, median incomes lower or any other measure you care to use about absolute incomes or living standards.

Of the growth that has happened since 1981 more has gone to the rich than the rich\’s share of national income in 1981, yes. Thus the rich\’s share of that national income has risen. This is not the same, not the same at all, as saying that money has moved from the poor to the rich.

Do note as well that this move has happened in all of the advanced, industrialised, countries. The Gini (index or coefficient, whichever you prefer to use) has risen everywhere. This is not something specific to UK politics. It\’s happened in Sweden, Denmark, China, India, just about everywhere: why, we might even think that if it\’s been happening globally it has some global cause.

A well-timed report from the Resolution Foundation this week laid out the raw figures: of every £100 rise in national income since 1977, the half of the population on average or below average incomes received just £12. Meanwhile, the top tenth received a £14 share. For much of the past 30 years the bottom half did see their incomes rise, so they didn\’t notice they were falling behind the rest.

See? Even Polly\’s figures do not show a movement of money from poor to rich. They show an uneven distribution of newly created riches, something which is very different indeed.

While everyone has varying ideas about how much inequality is tolerable – usually according to where they stand on the earnings scale – only extreme eat-what-you-kill social Darwinians think there is no limit. Stretch the social elastic beyond bearing, and it will snap at some point.

I\’m really not sure that I want a woman rich in years to be comparing society to a piece of knicker elastic. Purely a personal foible I know. But yes, accept the point: now, what is that point?

Anyone want to try and give a level for the Gini which is Goldilocks right? The level our parents had in 1976? There are those who claim that that was the best ever for the UK as that was when we had the lowest Gini.

Me, I\’d say that going back to 1976 levels of income would produce a bloody revolution today.

Yet he plainly doesn\’t get it: how extraordinary that he should drop a hint that as a stimulus he might abolish the 50% tax rate, only paid by the top 1%. That could be the awakening moment that lights the blue touchpaper of public opinion.

I doubt it very much indeed. We\’ve had this tax rate for what, two, three years? Reversing it is unlikely to bring the mob out onto the streets really. Although agreed, it\’d be pretty useless as a piece of stimulus for stimulus depends on how much dosh is involved. We\’re not even sure yet whether this tax rate is revenue raising at all and even the most hopeful estimates think it brings in a couple of £ billion. Compared to a £1,400 billion economy, just not stimulus one way or the other.

Gavin Kelly, writing about this research, headlines his comment \”Who ate all the pie?\” Everyone knows the answer, as Jonathan Portes, head of National Institute for Economic and Social Research, echoes: \”The top 1% has taken a hugely disproportionate share of growth while the middle and below stagnated.\”

And as I say, this has been happening everywhere. In every country. Thus a global cause, no? Me, I\’d point to globalisation. There\’s some small segment (and the real income growth has been in the top 0.1%, not the 1%) for whom globalisation has meant being able to earn a few pennies each from billions instead of a few pennies each from only their fellow national tens of millions.

I think of a distant relative who buys oil in the \’Stans, ships it across Asia and collects the profits in West London. Globalisation has opened up such opportunities (and Stephen Spielberg movies now show worldwide, Hollywood finally getting more revenue internationally than domestically, Mittal Steel doesn\’t even have a plant in the UK I don\’t think, etc etc). OK, so that\’s my theory but if every country is seeing the Gini grow then there\’s got to be some theory about why the Gini grows that applies to all countries.

All the reasons why middle earnings kept rising until eight years ago have now evaporated. Incomes grew when many more women went to work – but that has plateaued.

Err, no: ceteris paribus, more women in the workforce is going to lower individual incomes. Might raise household incomes, but that\’s not what we\’re talking about here.

Debt kept too many households afloat until the crash.

Taking out debt isn\’t counted as income so that doesn\’t work either.

Solutions include………. and a strong industrial policy to secure better jobs

Eh? Manufacturing is now a low income occupation. Building more factories isn\’t going to create better paid or more secure jobs: anyone who bashes tin is now competing directly with several hundred million Chinee on $300 a month. The only way not to compete directly with them is to have large amounts of capital behind each worker: be highly automated that is. Which of course doesn\’t in fact create many jobs. Well, except in the German capital goods factories.

No, Polly and economics, didn\’t turn out well.

4 thoughts on “Polly discussing economics: not going to turn out well, is it?”

  1. Look, she’s thick, she’s ignorant, and she doesn’t argue in good faith. Why do you bother with her?

  2. Any discussion about inequality of income with referring to income mobility is just useless blathering.

    “The composition of the very top income groups changed dramatically over time. Less than half (39 percent or 42 percent depending on the measure) of those in the top 1 percent in 1996 were still in the top 1 percent in 2005. Less than one-fourth of the individuals in the top 1/100th percent in 1996 remained in that group in 2005.”

    The ‘rich’ are a very fluid group. They sell businesses, earn big one-off bonuses or just have a good year, then many of them disappear.

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