Take a look at this NY Times graph http://www.nytimes.com/imagepages/2011/09/04/opinion/04reich-graphic.html?ref=sunday and the article from which it comes http://www.nytimes.com/2011/09/04/opinion/sunday/jobs-will-follow-a-strengthening-of-the-middle-class.html?_r=1

Wow, a sensible article from the New York Times.

this idea pops up in some unusual places – like the University of Chicago economics department:

http://www.project-syndicate.org/commentary/rajan7/English

A very similar, though slighlty less severe, trend has occurred in the UK as in the US. Here wages have been falling behind growth since the early 1980s, and at an accelerating pace. Since 1980, productivity has been rising at 1.9 % a year while wages have bene growing at only 1.6% a year. Since 2000, productivity has been rising at twice the rate of pay. This has created a growing gap between wages and growth, with the surplus siphoned off to fund higher profits, corporate surpluses and personal fortunes. This decoupling has created a very unbalanced economy and has been one of the primary causes of the 2008 Crash and the persistence of the current crisis. A very similar trend occurred in the 1920s.

lets hear the usual vile suspects explain all this then. What have your masters posted in the ‘excuses’ box today?

Well I hope I’m not one of Joe’s usual vile suspects, but Stewart gives one possible account in his post [4]: what constitutes a fair distribution of the benefit of productivity growth between labour and capital? And would it be the same in all circumstances? If the growth is due to a better educated workforce, perhaps 100% to labour is reasonable, but if it’s due to technological change (e.g. computerisation) perhaps the capitalists are not being unfair in demanding a share.

It is at least arguable that the last 20-30 years have seen massive technological change combined with a drop in educational standards, and that these factors have caused the growing inequality. I don’t think this is the whole story – obviously that would need to include an account of why trade union power has decayed during the period, apart from anything else.

A further problematic, I would suggest, is defending a focus on inequalities within ths country rather than those between (say) the G-20 and the rest of the world. Such a choice could be construed as racist, or at the least as tainted by “making an exception in favour of yourself”.

@6 I think most people would accept that globalisation of elite financial power and the ensuing loss of local counterbalances such as union power are by far the largest contributors to this situation. It was obviously designed to roll back the gains of post war western society, in which too many people were getting a look-in above their station, robbing the landed few of their rights to take all.

Anyway, however it is caused, beyond a certain acceptable level (I’d say where we were in the decades after the war being about right) economic inequality is a bad thing in a civilised society, certainly in the absence of very strong laws limiting financial access to political power and control over the democratic process.

It gives a few disproportionate power which they will inevitably use in accruing themselves more wealth and power, leading to a dysfunctional society. This is to say nothing of increasingly privileged access to finite resources, such as land.

If as you say, due to technological advances, the very rich are making much more money than they used to whilst everyone else is languishing, then taxation needs to be redistributed much more progressively to compensate, in order to maintain a balanced, healthy society. Of course the opposite has happened, for reasons staked out in the previous paragraph.

No, I don’t think you are vile Mike, just wrong. Deeply wrong.

‘A further problematic, I would suggest, is defending a focus on inequalities within ths country rather than those between (say) the G-20 and the rest of the world. Such a choice could be construed as racist, or at the least as tainted by “making an exception in favour of yourself”.’

Rrrrrrrrrrrrrrrrrrrrrrrright.
I see this…
‘why are you complaining that inequality is rocketing here when lots of third-world people are now getting the chance to earn a bit more now that we’ve moved all the jobs there, they don’t complain about working for a dollar a day with no rights – are you RACIST?’…
thing a lot from the right wing noise machine, it must be the new party line.

I predict that this asinine line of reasoning will be appearing a lot more in coming years, it’s transparently the next spin being warmed up for that moment when everyone in the west starts finally complaining a bit louder about why everything in their lives seems to be getting worse whilst a few percent seem to be doing better than ever.

Anyways, clearly inequality within a society is an extremely relevant thing to measure and evaluate.

Joe, I think we can agree that it’s not going to be possible to move back to the post-war settlement, which began to fall apart nearly forty years ago – after the oil crisis of 1973.

To restore it would require – and there were plenty of people on the left arguing in this way back in the 1970s – a siege economy. That might well produce less inequality, but it might also produce lower standards of living, too. In truth, if I have £110 whilst you have £1000, I am numerically better off than if I have £100 and you have £150 – but whether I feel better off will depend on where I get my self-esteem from. And political theory has nothing to say about that.

The honest acquisition of wealth has always been the exception rather than the rule. The Industrial Revolution was financed by – and some would say caused by – the riches plundered by officers of the East India Company, slave-owners in the Caribbean and so on. To-day fortunes are made by gambling on the markets, where the border between legal and illegal activity is purely arbitrary. The collapse of the Soviet Union clearly benefited a small clique of gangsters more than it benefitted the ordinary people of Russia. There may be a Third World country run by a military junta which is not up to its neck in kick-backs and other forms of corruption, but I don’t suppose anyone who reads this can name it.

I absolutely don’t support the Right, with this exception: they are more clear-thinking about what globalisation means for economies such as ours which are “advanced” to the point of sclerosis. Whatever anyone in Britain does for a living – unless it absolutely requires face-to-face contact – can be done at a fraction of the price somewhere in Asia. And, as Arianna Huffington has discovered in the case of journalism, popular high status work can be done for nothing by the children of the well-to-do. And this is before we contemplate the pace of advances in robotics.

Left-wing theory, whether in politics or economics, ground to a halt two generations ago. Had it not, Blair would never have been able to turn the Labour Party into a swizzle-stick for his own Tory-lite cocktail. Perhaps, Joe, you would care to remedy the lacuna. You might like to start with some proposals to make class more fundamental than race as a source of political cleavage. No one’s done that yet, least of all “actually existing” socialists.

@9 – The work you bothered to look at, perhaps. There’s been a lot of progress in mutual and cooperative circles. An educated populace can be levered in those kinds of enterprise to generate far better results than people without the same systematic background.

Let me try and put this more simply.

The government has two levers it can pull to drive growth. Fiscal or Monetary.

The Tories are denying themselves use of any fiscal levers. They say the reason this is denied is due to the outstanding level of government debt.

Leaving aside the truism that austerity measures by definition, through the effect on confidence and for monetary reasons are making things much, much worse- sucking demand out of the economy like water through a sieve. It isn’t even working under its own frame or reference- government spending is increasing rather than shrinking as despite cutting spending on useful public sector functions more money is flying out the door from lack of growth, lost tax revenue and higher spending on automatic stabilisers.

That leaves monetary policy. interest rates are on the floor at 0.5% so can’t go any lower. That leaves QE.

The Government owes shy of £900 billion.

Sitting in the Asset Protection Facility- a wholly owned by the Government subsidiary of the Bank of England is over £200 billion of the outstanding government debt. The APF bought up this debt in 2009 using QE- money created from nothing using the Bank of England’s powers to credit reserve accounts at will.

This £200 billion debt can be destroyed in a blink of an eye by the Bank just ripping the gilts up. Nothing more, nothing less. No effect on anything anywhere else except the Governments outstanding debt levels.

Instead the other option is for the Bank to try and sell this debt back into the market at some point in the future before the gilts mature, expire and cease to have any effects. The crazy, crazy thing here will be that the gilts will be sold back to the private banks and pension funds who sold them to the Bank in the first place and the Bank will receive cash from those who buy them. It will simply then rip up the cash it has been given.

This is absolute, absolute madness. Which path would you like to see the Government order the Bank to take?

[10] Please provide a link or two, Leon.

Re Mike’s point that gains to the rich are down to technological change (e.g. computerisation) and that perhaps the capitalists are not being unfair in demanding a share. IN fact technological change is not the explanation for the growing share of the cake taken by a small elite. Indeed, productivty growth has averaged 1.9% pa in the UK since 1980 whereas it grew at 3% pa in the post-war decades, a time when perosnal fortunes at the top were much lower and the gains from growth were much more equally shared. The real explnation lies elsewhere – in a combination of the de-regualtion of finance, the weakening of unions and the canonisation of the rich by successive governments. It has little to do with an increase in the rate of wealth creation but in a licence to emabrk on business strategies that have increasingly involved wealth diversion.

[13] I don’t feel that you’re being wholly fair to what I said in [6], Stewart. The notion that technological change has the capacity to disturb the relationship between capital and labour can be found, I think, in most classical economists, including Marx. In any case I was offering it as a hypothesis – I wholly agree with your comment that a combination of the de-regualtion of finance, the weakening of unions and the canonisation of the rich by successive governments has great explanatory force, although I don’t understand why you believe it to constitute a complete explanation.

And even if it does, we need to ask why these things happened when they did. My view is that capital expects a certain rate of return (R) and that it will take whatever political measures are necessary to secure that return, irrespective of all other factors. The oil shock of 1973 meant that it could not achieve R within the pseudo-social-democratic consensus that had been built up in western Europe since 1945. It is probably that consensus, rather than subsequent events, that needs to be explained as a departure from the normal operation of capitalism. The most obvious point is of course that “total war” as experienced in 1914-18 and 1939-45 requires capital to make concessions to labour which it then seeks the opportunity to revoke. But this cannot be the whole story – in particular, we need to be able to give an account of why Trade Unionism decayed and why that decay is accelerating. And, of course, to identify R and give an account of whether it ever changes and if so why.

Simple – globalisation of elite finance, which takes away any political power of the normal people of nation states.

Nope.

The elephant in the room is the massive amounts of government spending and increase in ‘poor welfare’ (versus welfare for the rich) that has done absolutely nothing to ‘decrease the wealth gap’. But meanwhile, the left scream that this whole crisis is due to ‘free-market capitalism’!

I have yet to see any rebuttal to the above (and I sought out Owen Jones in person to give me one).

16
The elephant in the room is the impossibility of fine-tuning capitalism. The free-market didn’t work and neither has the piecemeal drip of benefits to the many. Until we all realize what the elephant really is, there will always be a crisis until it’s resolved one way or another.

I’ve never thought of myself as an old-style nationalising socialist, but I’m beginning to wonder.

We’ve tried politely asking ‘wealth creators’ to give up a reasonable proportion of their created wealth in tax and in decent wages paid to their workers, and to use a further proportion of it to invest in ways that create jobs, on the basis that this would be a mutually beneficial arrangement: they get freedom from direct state interference, and the amount of money the Government has to spend on things like unemployment benefits and income top-ups for the poor goes down (thus making room for lower taxes and/or higher spending on things like infrastructure, education, and other stuff the private sector needs to flourish). But they won’t do it. All they’ll do is shuffle their money off to tax havens and sit on it, or else use it to buy up government debt in the desperate hope that when their own businesses and everyone else’s go down the toilet, the government will be able to extract enough money from someone, somehow to pay them back. If we’re not prepared to borrow money and spend it on employing people directly, maybe we need to print money, use it to buy up shares in some of these companies, and instruct them to start creating some jobs.

I don’t know. The whole QE things baffles the heck out of me. It just seems bizarre that the government can simply print money to give to private companies to (hopefully, fingers crossed) spend on job creation; but if the government *itself* wants to spend money on job creation, that money can’t just be printed – it has to be borrowed. Why? What catastrophe would have befallen us if the £75 billion the BoE just created had been paid directly to workers to build railways (or whatever), rather than to a middle-man private company?

Mike Killingworth: “If the growth is due to a better educated workforce, perhaps 100% to labour is reasonable, but if it’s due to technological change (e.g. computerisation) perhaps the capitalists are not being unfair in demanding a share.”

But whether it’s fair or not isn’t really the issue; even if extreme inequality is somehow morally justified, it still (if the writer is correct) crashes the economy.

I suspect inequality also crashes the political system’s ability to deal with the economy; extreme inequality, combined with a political system dependent on voluntary donations, will tend to mean policies being skewed to benefit the wealthy.

Here Roubini says much the same thing

http://www.project-syndicate.org/commentary/roubini43/English

I’m repeating myself, but this is why I think how to change the pre-tax-and-benefits distribution of income is the big economic question.

GO there is an answer to that, it’s to do with QE not giving anybody anything, well, almost, but swapping cash for assets that can be resold later to reverse things, the point being to keep the ability to control inflation. If you print money and give to govt, eithe you lose the ability to withdraw the money again when you need to, or it ends up amounting to the same thing as the govt borrowing it.

But you are right that monetary policy could be conducted by different, more aggressive and perhaps more equitable too, means. You might like this speech by MPC member Adam Posen, on that topic.

http://www.bankofengland.co.uk/publications/speeches/2011/speech517.pdf

@16 – Yes, because you don’t read them. British personal welfare benefits are miserly, and Corporate welfare is very high.

@17 – Er, what? The free market and capitalism are NOT the same thing!

There’s plenty of solutions. Look at the Mutualists for some of them…what’s missing is the willingness to implement anything except divisive identity politics.

18
‘I’ve never thought of myself as an old style nationalising socialist, but I’m beginning to wonder’.
This is an interesting comment and one that really isn’t surprising considering the events of the past five years or so.
In 1942, Joseph Schumpeter wrote – ‘The public mind has by now grown out of humour with it as to make condemnation of capitalism and all its works a foregone conclusion’
Unlike Marx, Schumpeter believed it would be the middle-class who would bring about socialism not the working-class, and, as things are going, he might just be proved right.

I’m not at all convinced by the causality suggested by the OP.

That his argument seems to depend on omitting the rise of Asia (with the enrichment and development there that has affected hundreds of millions of people) and the privileged colonial/post-colonial platform of the west post-war, it seems somewhat rich (indeed poetly ironic) for him to suggest an alternative elephant in room.

I note also that much of the argument relies upon the (loathed) rise and dominance of a coherent ideology (“neoliberalism”), willing and able to accurately defend the interest of capital over labour. This is too pat for my liking and puts this dangerously close in style to the wafer-thin veneer of learning that Naomi Klein places around her inaccurate, misleading and overall quite weird book, Shock Doctrine.

And finally, can we not do better, rhetorically speaking, than another political convenient “true” reason for the credit crunch? The crunch came about because of the big state and big finance colluded to make transactional finance as easy as possible; and then the central banks post-9/11 pushed down the price of credit to historically low levels.

PS comment #9 is one of the finest comments I’ve ever read here.

@16, welfare becomes profit for businesses, unless it is spent in the black market, which is laundered into businesses, in other words welfare increases demand for everything from a house to a telly to a beer, or black market equivalent. that increases profit – which becomes a wealth acumulator’s tax free zeroes