Running trains faster but leaving more people on the platform is nonsense

Earlier in the week I was in Britain. Walking around the streets of Brighton, for example, was a stark reminder of how a wealthy nation can leave large numbers of people behind in terms of material well-being, opportunity and, if you study the faces of the people, hope. I am used to seeing poverty and mental illness on the streets of the US cities but in Brighton, England it very visible now as Britain has struggled under the yoke of austerity. Swathes of people living from day to day without hope under the current policy structures, damaging themselves through visible alcohol and substance abuse, cold from lack of shelter and adequate clothing, and the rest of it. And then a little diversion around the City area of London, where the overcoats the men wear cost upwards of £2,000 and the faces are full of intent. Two worlds really. I was thinking about those recent experiences when I read the latest release from the IMF (September 20, 2017) – Growth That Reaches Everyone: Facts, Factors, Tools. Their analysis continues the slow move of the IMF to acknowledging, not only the reality the world faces, but also, by implication, the massive costs that this institution has inflicted on poor people around the world.

I reflected on the street poverty in England in this blog – 17 inch-long pigeon spikes – out of sight, out of mind.

I have written about inequality before (among other blogs):

1. Reducing Inequality

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

3. Rising inequality demonstrates we haven’t learned much.

4. Trickle down economics – the evidence is damning.

The IMF started banging on about ‘growth-friendly austerity’ at the height of the GFC as a means of defraying their own culpability in the disaster.

Their ideological outlook required them to persist with their austerity obsession, in partnership with the European Commission and the European Central Bank, but the results of their interventions were increasingly negative and significantly so.

The politics and public relations disaster of the orchestrated demise of Greece under the control of the Troika, doing the work of Germany, became intense and so the IMF had to make up this ‘growth-friendly austerity’ nonsense to allay public discord.

They wanted us all to believe that hacking into public spending in a nation that was already enduring a collapse of private spending would suddenly defy all economic understanding and spring into a new period of growth.

It was surreal following and commenting on this at the time. It was like a game that you might play with kids and show them an orange and tell them it was an apple.

But, kids are smarter than us, it seems, because they would never fall for that.

The rest of the world did fall for the IMF ploy. Why do I say that? Because we continue to support them via the funding from our sovereign governments. No IMF official has has been prosecuted for professional malpractice over the disastrous modelling that they finally admitted was wrong in relation to the Greek bailouts.

No-one gets sacked for the systematically hopeless forecasts the IMF pumps out. And more.

But the ‘growth-friendly austerity’ story fell apart pretty quickly as nations enduring austerity went further backwards.

At the same time, progressives seized on income and wealth inequality as an agenda to pursue, having rendered themselves innocuous in the macroeconomics debate through their acceptance of the overall neoliberal economic myths that underpinned the austerity push in the first place.

So it was all inequality, inequality, inequality – and ‘tax the rich’ type policy slogans, which, presumably, made everyone on the Left feel better a bit but grossly missed the point – that taxing the rich gave the state any extra funds that it already had as a result of its currency monopoly.

We might want to increase taxes on the rich because we think they have too much purchasing power (a moral story!) or for some other reason, but never would we want to do that to raise ‘funds’ for the government to spend.

So the progressive push just goes down the sinkhole of irrelevance.

But the IMF is also making further moves towards reality in their own recent interventions in the area of inequality.

The September statement (cited above) says:

Economic growth provides the basis for overcoming poverty and lifting living standards. But for growth to be sustained and inclusive, its benefits must reach all people.

While strong economic growth is necessary for economic development, it is not always sufficient.

This issue came up in my presentation in Brighton (England) at the fringe British Labour Party Conference event. A ‘Green’ concern was expressed about the imperative zero growth.

I argued that with rising population growth and continued abject poverty in the world we had to continue to have economic growth (real GDP rising).

But the challenge was to make that growth environmentally sustainable and, as the IMF now recognise, inclusive.

It just doesn’t make sense to run the trains faster and leave an increasing proportion of passengers behind on the platform.

The growth at all costs mantra that dominated the IMF in the past seems to be becoming modified by the inclusive notion.

The IMF research now:

… makes it clear that persistent lack of inclusion-defined as broadly shared benefits and opportunities for economic growth-can fray social cohesion and undermine the sustainability of growth itself.

In other words, the ‘trickle down’ mantra that dominated the early years of this neoliberal era does not accord with the evidence.

You need to worry about distribution as well as levels of national income to maintain growth in the levels.

Feeding the rich does not provide scraps for the poor.

The IMF detailed their work in a paper prepared for the G-20 Leaders’ Summit in Hamburg, Germany (July 7-8, 2017) – Fostering Inclusive Growth.

It outlines several ways in which “high and persistent inequality” undermines “longer-term growth and macroeconomic stability”.

1. “high inequality can be destructive to the level and durability of growth itself … weaken support for growth-enhancing reforms and spur governments to adopt populistic policies, threatening economic and political stability”.

2. “High inequality can yield a less efficient allocation of resources” which means that the poor will not receive sufficient education and training and thus the nation loses the potential embodied in that cohort.

Studies show that if opportunities to participate in education and training are restricted by income class and so ‘less able’ rich people gain qualifications at the expense of ‘more able’ poor people, then the overall skill levels that are developed are lower and the nation suffers as a result.

3. “Inequality resulting from high unemployment can impose large economic costs” – unemployment is the largest inefficiency there is and dwarfs all the things neoliberals rave on about (buses running a little late, etc).

There are huge daily losses to a nation in terms of lost output and income from mass unemployment. That has been one of the craziest things about this neoliberal era – the willingness of policy makers to tolerate (and maintain) huge pools of underutilised labour while demanding public enterprises are privatised (for example) to make them more ‘efficient’.

4. “Inequality can also cause social conflicts”.

5. “Inequality and unemployment can impair individuals’ ability to cope with risk and thus increase macroeconomic instability” – the irony of neoliberalism is that it claims it wants to reduce the community’s reliance on welfare yet creates a larger pool of people who only have income support standing between them and starvation.

By sustaining mass unemployment, neoliberal policies force the state to also increase its welfare spending, given that most societies haven’t yet got to the stage of exterminating those without work. That is, yet!

Recall this blog – L’horreur economique – where I reviewed a disturbing book written by the French writer Viviane Forrester.

In her 1996 book called L’horreur Economique about unemployment (you can get the 1999 English version – HERE – essential reading) – she proposed that governments are failing to generate enough employment but at the same time they are promoting a backlash against those who are jobless.

Viviane Forrester wrote:

The panaceas of work-experience and re-training often do nothing more than reinforce the fact that there is no real role for the unemployed. They come to realize that there is something worse than being exploited, and that is not even to be exploitable …

The book ventures into the notion that governments (elected by us) have made the unemployment dispensable to ‘capitalist production and profit’ and have instead been content to keep them alive. But soon, why would it not be implausible to declare this growing group of disadvantaged citizens totally irrelevant.

The proliferation of jobless vagrants in Brighton (England) are irrelevant to the mainstream British society.

We allow our neoliberal governments to claim there is not enough ‘money’ to solve all these problems.

But if the unemployed and homeless are ultimately dispensable for capitalist production (and that is what persistent long-term unemployment suggests); and they cannot do anything productive if we employ them in the public sector (that is the overwhelming view of the deficit terrorists); and they are a nuisance to manage (you know all the arguments – income support corrupts etc) – then ultimately society might start asking “what is the point of the unemployed?”.

That is the disturbing question that Viviane Forester poses.

She postulates that then different solutions might be advanced such as getting rid of them altogether. Don’t think this is off the track … after all only 70 odd years ago Germany decided that a definable cohort was dispensable and could be exterminated.

I am writing this from Berlin!

L’horreur Economique is one of those books that you just go back to from time to time to remind yourself of the message.

The IMF research now establishes two key propositions as being firmly evidence-based:

1. “high inequality is … negatively associated with sustained growth”.

2. “the duration of growth spells is negatively related to the initial level of inequality”.

That is, according the way in which we accept ideas as knowledge, these propositions are factual rather than just opinion.

The following graph(s) is taken from Figure 1 of the document cited above which shows the evidence generated to support the statements.

The left panel provides support for the first statement. The horizontal axis shows increasing inequality (measure by the Gini coefficient), while the vertical axis is a measure of real GDP growth (over an extended 10-year horizon).

The data covers the period 1960 to 2010.

The observations cover G20 nations (red) and others (blue).

There is a clear negative relationship (the green average regression line).

The right panel has the same horizontal axis and colour code but the vertical axis shows how long the growth spell endures once underway.

The right panel provides support for the second statement.

The IMF also distinguish between “inequality of outcomes (ex post) and inequality of opportunity (ex ante)”.

So income is usually the outcome measure that is focused on, and the evidence is clear:

… inequality between countries is still higher than inequality within countries … almost two-thirds of global inequality is still attributable to per-capita income gaps between countries.

Which shows one how deep the problem is, given that the top 1 per cent of the income distributions within countries have enjoyed massive growth in income at the expense of lower income cohorts and that “Within-country income inequality has
been on the rise until the mid-2000s, especially in advanced economies.”

Further:

In many countries, a disproportionally large share of income has accrued to the top 1 percent of the income distribution … [and] … the average labor share of income has declined in many countries, particularly among low- and middle-skilled … The decline in the global labor share of income has generally implied higher income inequality

These trends – within-countries – have been large. So the disparity between-countries have been larger and an indictment of the failure of the neoliberal era.

The IMF also find that “Wealth is distributed more unequally than income” and, as is often noted, wealth provides access to power and influence.

And so the cards are stacked against those at the lower income and wealth classes which excludes their voice from the policy making process.

Conclusion

I am off to Madrid this morning (currently in Berlin) so that is all I can write on this today.

Reclaiming the State Lecture Tour – September-October, 2017

For up to date details of my upcoming book promotion and lecture tour in Late September and early October through Europe go to – The Reclaim the State Project Home Page.

Last night’s event in Berlin was very well attended and the discussion was interesting.

Tonight’s public event is in Madrid. I have other engagements in Madrid in addition to this.

Speakers:

• Professor William Mitchell, Author Reclaiming the State.
• Thomas Fazi, Co-author Reclaiming the State.
• Dr Eduardo Garzón, Adviser in the economic cabinet of the Economy and Finance Area in the City of Madrid.
• Manolo Monero, Parliamentary Deputy for United Podemos.

Location: Ecooo, Calle Escuadra 11, 28012, Madrid, Spain.

Time: The event will start at 18:30.

Entry: Free. All are welcome. A small donation will be appreciated by organisers to cover room hire.

For further details: E-Mail Stuart at redmmt.info@redmmt.es or madrid@redmmt.es

That is enough for today!

(c) Copyright 2017 William Mitchell. All Rights Reserved.