Yesterday’s inequality confusion

Much of the case against me marshalled by Kevin Doogan, professor of European policy studies at Bristol University, on yesterday’s Thinking Allowed programme rested on a simple logical confusion.

A lot of what he argued assumed that rising inequality necessarily means that absolute living standards for the poor must fall. But this claim rests on a basic numerical muddle.

With apologies to those with an aptitude for maths lets take a simple example. Say a society consists of only two people: Angela and Bert. In 2009 Angela earned £100,000 and Bert only earned £10,000. This year Angela’s income, with the help of a big bonus, went up to £200,000 while Bert’s salary went up to £15,000. In this example there is a sharp widening of inequality but Bert is still better off in absolute terms.

Some might object that this is a over-simplified example but Doogan made more than one similar error when attempting to rebut me. For example, he said that the life expectancy of African Americans is even lower than that of people in Bangladesh – and by implication suggested (correctly) there is a big gap between the life expectancy of blacks and whites in America.

As it happens this is an example I examine in my book and it supports my case rather than his (p96). Official American statistics indeed do show that there is a gap between the life expectancy of all “races” and African Americans. However, over the twentieth century the gap has narrowed and life expectancy for both groups is at a record high.

Would it be better if the gap narrowed further through a rise in the life expectancy of blacks? Of course. But curbing economic growth is if anything likely to have the opposite effect.

I would also argue that it would not be desirable to achieve equality simply by lowering the life expectancy of the majority white population. How would black people – who tend to be poorer – benefit from the suffering of many millions of whites?

It is even true that the living standards of the poor can often rise even if their incomes are stagnant (although I would much prefer it if they were rising). For example, the poor in America have benefited significantly from the surge in imports of cheap consumer goods from China (the result of rapid economic growth in Asia). They also often have access to many goods they did not have in the past (mobile phones, air conditioning and so on) and can benefit from improving infrastructure such as better hospitals or schools.

Just to be clear though; I am NOT saying that inequality is inherently positive. On the contrary, much of what I am arguing, for example for the economic transformation of the third world, suggests the need for greater equality.

What I am saying is that:

* Curbing economic growth will harm the poor. It also follows from this that putting growth into reverse – a  recession – harms them even more. To oppose austerity effectively it is necessary to challenge growth scepticism.

* I am against what I call “green egalitarianism”. That is the notion that we should all level down or implement some kind of equality of sacrifice.

* The populist attack on “greedy bankers” is, paradoxically, a coded attack on the living standards of ordinary people. It is a way of trying to instil a morality of sacrifice and restraint by attacking caricatured representatives of “greed”. That is why, despite not having any love for bankers, I think it is important to resist one-sided attacks on finance by politicians and the media.

In essence my argument is that inequality IS a problem but the best way to tackle it is to demand more for everyone rather than less. As it happens this is in line with the arguments of many left wing thinkers including Sylvia Pankhurst, a radical socialist and campaigner for women’s rights, who I quote in my book (pxii) saying that:

“Socialism means plenty for all. We do not preach a gospel of want and scarcity, but of abundance”.

I will not deal with Doogan’s other misunderstandings except to say that his characterisation of my previous book, Cowardly Capitalism, as arguing that the possibility of financial turmoil is exaggerated is outrageous. I certainly do contend that financial markets are driven by risk aversion but I go on to make the case that this makes volatility MORE likely. This is covered in a section headed: “The risk paradox – cowardly capitalism can make the world more dangerous” (p132-7). Anyone who wants to verify this point can order the book from Amazon or look it up in a library.

Having said all that Kevin Doogan’s New Capitalism? (Polity 2009) is an intriguing read. It makes a compelling case that, contrary to the conventional view, the workforce in the developed world is not becoming more casualised or more globalised.

If only he was as sceptical towards many of the other tired orthodoxies of contemporary capitalism.