The Australian’s Michael Stutchbury says this will require ‘tough-love’ policies.

Usually, this is code for giving carrots to the rich and sticks to the poor. Tough for the bottom of society, great for the top,

In economics, inequality rocks. Right?

Well, actually no.

Inequality peaked in the US just before the great depression, and it only returned to those levels just before the GFC (see Palma, Cambridge Journal of Economics).

That’s not news. Keynes pointed out that inequality made the economy more unstable.

In the period before the GFC, growing inequality encouraged people to go into debt to ‘keep up’, contributing to excessive consumer debt and a housing bubble.

This week nobel laureate and NYT columnist Paul Krugman has pointed out that the economy grew faster, and media family incomes much faster, before modern finance, and the whole neoliberal experiment, when incomes were less unequal:

Take the United States, which wasn’t damaged in the war. Take per capita real GDP. Give hostages by taking data from 1950 to 1980, which means including the 1980 recession, but stopping at 2007, so that the current slump isn’t included. Then here’s what you get:

Growth in per capita real GDP from 1950 to 1980: 2.2 percent per year

Growth in per capita real GDP from 1980 to 2007: 2.0 percent per year

Oh, and if we look at real median family income instead, we get:

Growth from 1950 to 1980: 2.3 percent per year

Growth from 1980 to 2007: 0.7 percent per year

Sorry: there’s no measure I can think of by which the U.S. economy has done better since 1980 than it did over an equivalent time span before 1980. It may be something you’ve heard, it may be something you’d like to believe, but it just didn’t happen.

We also know that more equality is better for everyone in society, with the possible exception of the super-rich, because of a recent book that brought together all the evidence, “The Spirit Level: why more equal societies always do better”. A key argument is that:

While it is often assumed that social problems bear little relationship to average incomes, the evidence suggests that income differentials within populations matter a great deal, and this is as true of American states as it is of countries around the world.

In the most unequal countries and states, there is more gender inequality, too, and these places are less generous. A higher proportion of people suffer from mental illness, and more use drugs.

Less egalitarian countries have six times as much obesity. Educational attainment is poorer, with higher dropout rates, shorter periods of paid maternity leave and less early childhood education. Teenage birth rates are higher, and it is young men from disadvantaged neighbourhoods who are most likely to be the victims and perpetrators of violence.

In more unequal countries, children experience more bullying, fights and conflict, and rates of imprisonment are five times higher. Although it is possible that heath and social problems cause bigger income differentials, inequalities are the common denominator.

The same is true for economic growth. If we want growth we have to ensure that the benefits (and the tough-love stuff) are seen to be borne more equally than in recent decades.

Unfortunately, few Australian policy makers and commentators seem willing to recognise the need for more, not less, equality.

]]> http://blogs.crikey.com.au/trevorcook/2009/11/10/more-not-less-equality-needed-for-economic-growth/feed/ 5 http://blogs.crikey.com.au/trevorcook/2009/11/05/business-needs-to-keep-perspective-on-social-media/ http://blogs.crikey.com.au/trevorcook/2009/11/05/business-needs-to-keep-perspective-on-social-media/#comments Thu, 05 Nov 2009 09:30:32 +0000 Trevor Cook http://blogs.crikey.com.au/trevorcook/?p=6125 I had a great time talking to a business group in Sydney today, my theme was that social media is suited in some corporate circumstances and not others. I made the point that there was nothing blue sky or revolutionary about social media and, indeed, it has some real drawbacks for corporates. I made four points:

• Mainstream. The yes or no debate is over, its now about how. Social media is here and its important that we understand it and use it or respond to it in ways that are consistent with our corporate objectives. So social media should be in every comms strategy even if we consider it and decide not to use it or not to use it much

The Obama campaign is the current gold standard of this approach – they controlled message but they allowed people a great deal of lattitude in the way they helped promote that message

• Scalability. MySpace is dead, lost its cool. Facebook is too mainstream to be cool for kids anymore and Twitter is very limited. The more people using something, the more chaotic and junky it becomes.

• Nothing is dying. Media is fragmenting. Big media is still big media but there is more of it, more of it is delivered over the Internet and more of it has a participatory component. A fragmenting media means we as communicators have to get in front of people through a range of media. But radio will be here for a long-time, so will TV and so will newspapers.

• Content will be king, again. Especially content that actually contains new and important facts. Conversation is fine but it’s better if it’s informed. We’ve seen an explosion in opinion outlets. Crikey, the punch, national times, ABC unleashed. I don’t think business is using these outlets effectively. But opinion is great and can be important and entertaining, what is harder to do and costs more is the generation of facts – business and non-government organisations are well-positioned to help feed this need. But we’re not doing much of it yet.

This is not to say that the macroeconomic model-building of the past generation has been pointless. But I do think that modern macroeconomists need to be rounded up, on pain of loss of tenure, and sent to a year-long boot camp with the assembled monetary historians of the world as their drill sergeants. They need to listen to and learn from Dick Sylla about Alexander Hamilton’s bank rescue of 1825; from Charlie Calomiris about the Overend, Gurney crisis; from Michael Bordo about the first bankruptcy of Baring brothers; and from Barry Eichengreen, Christy Romer, and Ben Bernanke about the Great Depression.

If modern macroeconomists do not reconnect with history – if they do not realize just what their theories are crystallized out of and what the point of the enterprise is – then their profession will wither and die.

The economist Jovanovic wrote, about a quarter of a century ago, “efficient firms grow and survive; inefficient firms decline and fail”. What he meant is that the market is Darwinian; it will rule out the least efficient firms, with habits and practices that make them perform comparatively badly, and it will make sure efficient firms prosper, so that only good business practices prevail.

Yeah right.

When you look around you, in the world of business, one sometimes can’t help wonder where Darwin went wrong… How come we see so many firms that drive us up the wall, how come we see silly business practices persist (excessive risk taking, dubious governance mechanisms, corporate sexism, grey suits and ties to name an eclectic few), and how come so many – sometimes well-educated and intelligent – people continue to have an almost unshakable belief that the market really is efficient, and that it will make the best firms prevail if you just give it time?

The media is at its rancid worst this morning bemoaning the technical absence of a recession when everyone reeaalllly knows the whole place is f#cked.

Ross Gittins defends his right to call it a recession no matter what the data say. Interestingly, a week ago he was writing on the need for positive thinking and the Government’s cleverness in spinning it’s budget message to accentuate the positive.

Last week he also said: “We’re still in the phony war stage of the recession, where everyone uses the word but we’ve yet to see much evidence of it in unemployment.” But today? Whoa, what happened Ross?

The acid test for recession is not quarterly movements in gross domestic product, it’s what’s happening to unemployment. This has risen by 1.5 percentage points in 14 months. That’s more than 160,000 extra people without jobs. Not in recession did you say?

Actually, I think you pointed us in that direction, Ross. From not much evidence of it to burgeoning jobless (as the headline says) in a few short days.

At the Australian, Michael Stutchbury seems personally miffed by the rogue GDP result and concludes rather snarkily:

But this won’t stop unemployment from rising, which will hit consumer spending. The record net export boost won’t be repeated. And business investment is collapsing.

Australia will be battling recession for the rest of the year.

Thankfully, the Australian also has George Megalogenis who is a notable exception to the ‘we wuz robbed’ tone of much of the media commentary:

Funny, isn’t it, how easy it is to twist good news? There is a relentless negativity in our public debate about the economy at present that defies what our own senses are telling us.

Australia remains the only developed economy with a fighting chance of avoiding a deep recession, but we don’t want to believe it.

The most plausible case from here on is for a normal recession in an abnormal world.

In other words, a soft landing in which unemployment does not race too far past 8 per cent.

In fact, many in the markets are far more positive than the doom spruikers in the media:

“Rumours of the death of the Australian economy have been highly exaggerated.

Every other major developed economy went into reverse in a big way in the first three months of the year but Australia actually grew,” Commsec economist Craig James said.

“The worst of the economic slowdown is now over.”

Advertising supremo, Harold Mitchell, who possibly has even more contact with the ‘real’ world than Ross Gittins, also tells it as he sees it (to borrow a bit from the Gittins prose flowerbed) in the Age this morning, and it’s a very different perspective:

The real news about the real world of today is that confidence in the economy is returning but we will still get some bumps along the way.

Marketing people are always more interested in the future than the past and I am with them. I never found a way to make money out of the past anyway.

Only economists worry about the past and so they should, given their recent performances.

As to the politics of it all, Peter Hartcher gets that exactly right:

For a neophyte prime minister with no experience in economic policy, this is a vital political trophy. It gives Rudd a new credibility as an economic manager. It will help entrench him as a competent leader in difficult times.

Says (spuiks?) Lee:

But as a loyal and valuable reader of this blog, I’m giving you just 7 days to naba free copy of the Twitter Mastery for Business report as a way of saying “thank you” for being a part of my community.

All you have to do is subscribe to this blog via your email account. I’ll send you an email in return with all the details of how to download Twitter Mastery for Business – you’ll be a Twitter Master in no time!

Tanner likes to pop up on the media, far too often, proclaiming himself the torch bearer of this tradition, but the evidence so far suggests otherwise. No amount of spin about the Government’s ‘toughness’ can hide the reality. As Alan Wood noted in the Australian today:

This is a Government that couldn’t make the hard spending decisions in its first budget, has managed only a half-hearted effort in its second and is unlikely to do much in its third, an election budget.

Tanner’s unwillingness, or inability, to do his job properly is further undermining the Government’s already shaky economic management credentials. He needs to scale back the media chattering and start putting some real muscle into the job.

We’ve seen a bit of this stuff locally too. For instance, the Gladstone Observer has a useful piece, “Tackle recession blues with books“, the fairfax media recently had a piece on the trading-down phenomenon that is now confronting retailers and the Australian has a piece arguing that savings has become fashionable again. The Shane Warne musical is the latest recession victim. Earlier this month we had the frugal fashion week (an oxymoron surely) and, my favourite, the return of ‘nanna know-how’:

DID you know that cold tea makes a great furniture polish? Or that half a cup of bicarbonate of soda in the tub makes a relaxing, effective — and extremely cheap — bath wash?

No I didn’t and I don’t think I wanted to know either.

STEPHEN LONG: For eight years now Ken Henry’s given the post-Budget speech to economists as the head of Treasury and in that time, few Federal Budgets have had such a sceptical, even hostile response. Today Dr Henry all but conceded it hasn’t been sold well.

KEN HENRY: When the country’s best communicator of economic material, and of course here I’m referring to our friend Ross, confesses that, and I’ll quote, “this is the most puzzling back-to-front Budget I can remember,” it’s clear that we have a communications problem.

STEPHEN LONG: The Ross he’s referring to is Ross Gittins, the long-time economics editor of “The Sydney Morning Herald”. He dubbed this one “the Budget that brings home the confusion”.

KEN HENRY: Some budgets speak for themselves I guess. This one apparently does not.

STEPHEN LONG: Perhaps because it has not one but three narratives: fiscal stimulus to combat recession, charting a path out of deficit, and ways to meet the fiscal challenge of an ageing population.

Although he conceded it wasn’t an easy Budget to explain, the Treasury boss was clearly irritated by what he saw as the inability of some in the media and the commentariat to get it.

KEN HENRY: This is storytelling of extraordinary complexity. And while it hasn’t tested Ross it clearly has exceeded the reading age of many.

STEPHEN LONG: But even the economically literate came in for a serve. There was again a note of irritation as he attacked the way in which economists and commentators have questioned the Budget forecasts for economic growth.

KEN HENRY: What’s most interesting about these arguments I have found is that they’re often accompanied by extensive quoting of our own material published in Budget Statement 4. It’s as if we must have failed to take account of our own analysis. Yet others seem to think that we must have simply plucked the numbers out of the air. 

I’m going to tell you what we actually did. It’s a little complicated but I know it’s not too complicated for this audience.