RDN on inequality on BBC R4 BH
I was invited to debate inequality and bankers’ bonuses on BBC Radio 4 Broadcasting House, from the home of W1A. This is what I scribbled down to inform my outing…
Inequality has grown in the Anglosphere, with the top 1 per cent hoovering up a big share of the economy and its recent growth and the top 0.1 per cent outstripping even them. Should we care?
I have dealt almost excessively with the Spirit Level view that inequality equates to unhappiness. (The unhappiness industry mangles the inadequate data to support their prejudices.) Roughly speaking, one can pick a place one would like to live and find its position on the inequality scale to be rather at variance from the average assumption of such things. Oslo or London or Bhutan? Melbourne or New York or Hamburg?
One approach to the “problem” of inequality is to assume that one can take from the rich and do them no harm and give to the poor and do them a lot of good. That proposition led to socialism and welfarism and is thus of debatable merit. But anyway, we are no longer sure whether it is wise to “over”-tax the rich, especially when they can find easier tax environments to live in – and in which to create businesses – if they prefer. Besides, beyond a certain point, it seems impossible to get people actually to pay much more tax; and anyway, the depressive effect of high taxes on people’s economic activity tends to reduce the tax take anyway (so says the wise Laffer).
The usual leftish or soft-left liberal dislike of inequality is not an economic one. It is that it is plain wrong that one group should swan about in luxury whilst another wallows in squalor. The force of this impulse would be stronger if there was some argument linking the wealth of the rich with the poverty of the poor. But there isn’t. People getting rich doesn’t seem to make other people poor. This isn’t a zero-sum game.
What’s more, and this is my big point for tomorrow, I think, we have in England and in London especially, a capital of the modern global economy. That means that there are pockets of really great wealth which are in effect international. Would we rather not have them here? But our poverty is, as it were, home-grown. We have an ill-equipped class – a working class, an underclass, a class of disadvantage, whatever – which is neither skilled enough nor willing enough to compete against immigrant labour or the world economy. They lack the 4 R’s: reading, writing, ‘rithmatic and articulacy.
We are in a bind about such people. A recession would have made their lives bloody, even if they had been better equipped. But there’s worse: if we blame them for their plight, it seems cruel; if we don’t, they may never get motivated. I am inclined to blame socialism and the 60s for the failure of the middle class to do the one thing which might have been done for the failed class: tough love. IDS is trying to put that right. Anyway, the work in hand is to get rid of the working class, as defined and romanticised for generations. We have no need for under-educated, unwilling or job’sworths types now.
In political and economic terms, we are in other binds.
In practical terms, there as been a 50-year debate and wrangle about redistribution from rich to poor, and it has been the essence of political rhetoric. (In practice, left and right converge more than their debating points imply.) Until recently, it seemed almost settled that (for Britain) we would accept an overall tax take somewhere between that of Scandinavia (50 per cent, or a bit more, tax take) or the Continent (40 per cent, or a bit more, tax take), and – on the other hand – the rest of the Anglosphere (30 per cent, or a bit more, tax take). At the same time, it seemed almost settled that somewhere around 40-55 per cent top rate of tax was about the range of economic and political reality. [Note: it’s a while since I checked the current tax takes of different countries, and I will do that when I remember.]
But we are no longer sure that we were thinking in the right way. A new economic argument is being touted. It suggests that in the modern world we are misreading the role of capital and wealth and that – alongside that – we may have fallen too easily for the view that inequality is necessary for growth. (Thomas Picketty and his main British fan, Martin Wolf of the FT, make these points.) I don’t pretend to understand this argument and if it is a deal-breaker, so be it. But I think for now we can at least say that the case is not finally made, not by a long chalk.
But sure, if inequality is bad economics, so be it.
Oh, and bankers’ bonuses. The standard mantra is that Barclays and others are rewarding failure. But why not listen to what Barclays say they are doing? They say they are rewarding the people who are doing the work which stops a bad situation getting worse, and the firm has to do it with bonuses for fear of losing these heroes abroad. If that isn’t true, so be it. And it is good that shareholders are arguing about it all. But might not the Barclays case be true and reasonable?