Tag Archives: inequality

The Flawed Belief in TINA (there is no alternative)

Today there was yet another article in my daily newspaper by a prominent politicians disparaging those on the political left that fail to recognise the realities of life and want to make impossible changes in society. This disparaged group who are abused as fantasists, protest voters but never by terms that suggest that their choices are made on the basis of rational judgement. The only surprise is that he did not suggest taking the vote away from these ‘childish’ voters. Actually one former leading politician did suggest that by suggesting that the vote for the new leader of the Labour Party should be sabotaged by the other candidates withdrawing so making the contest invalid. If this had happened the same politician would have advised on how to rig the voting mechanism to ensure the right person was elected.

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18th Century Aristocrats (counter-factual.net)
What is barely understood is that we are governed by an elite comparable to the landed aristocratic elite that dominated politics in the eighteenth century. This elite is composed of politicians, media persons, technocrats and financiers educated at the elite universities. (There are other groups that could be included but for brevity I have excluded them, what they all have in common is an education at one of the elite universities. It is this education that sets them apart from the rest of society.) What they practice is a policy of exclusion, only the dialogue between the members of this selected group is considered valid. They only listen to themselves, the rest of society is to be a childish rabble whose views and opinions are not worthy of consideration.

What I want to attack is the shared understanding of this group, an understanding which ‘things must be as they are’ or as it is more familiarly known TINA that is the society in which we live is the product of economic, social and technical forces that are beyond the control of individuals. What the politician must do is understand those forces making for change and work within the constraints imposed by them. Social democratic politicians recognise the pain of people working on zero hours contracts and that caused by job insecurity, but their role is not to change the cruel inequalities in society. Their task is to explain that low wages and job insecurity are a feature of modern society and must be accepted and that it is only through individual efforts at self improvement can circumstances change. The only amelioration they offer is the most modest of reforms, which will have little impact on there working lives. The social democratic party refuses to accept policies that would reduce or end job security by insisting that it is not the role of government to ensure that employers treat their employers well, what they instead offer is a way out of this appalling way of life through self improvement via education.

This new elite remains isolated by its adherence to things must be as there are ideology from the wider discontent in society. They believe that they are the ‘grown-ups’ in the words of Christine Lagarde (Managing Director of the International Monetary Fund). The new left in Greece (Syriza), Spain (Podemos) and Britain are childish fantasists trying to ignore the reality of the grown up world.

As a sceptical economist I must doubt such understanding of society I would ask why is it society is as it is? The reasons given are irreversible technological and social changes. Yet on examination they are only partial truths. Technological change has taken place but the distribution of incomes is determined by the social order. The company director in Britain earns a hundred times the salary of the average of the incomes of the employees in his business. In the 1960s the director’s salary was only 30 times greater than the average. Why the change, if the answer is that company directors have become more productive, that is open to objection. The profitability of companies as a return on capital invested in very similar to that of companies in the 1960s. The falsity of this view is demonstrated by the fact that in many failing businesses the directors are paid excessive salaries, how can huge salaries be justified for such corporate dimwits?

What as the sceptical economist I would say that there are different reasons for gross income inequality. While it cannot be doubted that some income differentials are due to technical change in that information technology has made many former skilled occupations redundant, the growing prevalence of the low wage culture has origins elsewhere. One is custom and tradition which decrees that unskilled occupations only deserving of low incomes.There is one interesting example which demonstrates this fact. When at university I read a book on applied economics by a Professor Brown and one example from that book sticks in my mind. He stated that the evidence suggested that wage differential between craftsmen and unskilled labourers had remained the same since Roman times. This suggests to me that much the justification of current income differentials comes from custom and tradition and does not reflect the real contribution each employee makes to the business. Why should the cleaner or the sales assistant be paid so little?

The other factor is power, the financial and industrial elites have cited custom and tradition as the reasons for low pay. Their mantra is unskilled staff make such a small individual contribution to the businesses profitability that they are only deserving of low pay. Yet I have never read of any study which has successfully identified the contribution to the firms productivity of say the cleaner and the financial director, yet the salary of the latter is more than that of the former. Businesses are a collaborative venture in which it is impossible to identify the contribution that each individual makes to the success of the business. Is the cleaner really that unproductive? It is the cleaner that maintains the workplace as a clean and healthy environment in which to work. Dirty toilets and uncleaned washrooms would lead to outbreaks of illnesses associated with unhygienic environments. How productive would the company director or IT specialist be if struck down by dysentery? There is good reason to suggest that cleaners are vastly underpaid, yet employers continue to pay the minimal wages.

Governments have enabled this power grab by the business elite by passing legislation to weaken or destroy those organisations that are the only means of equalising power in unequal labour market. Ever since the Neo-Liberal revolution politicians have constantly weakened the power of those groups that threaten the power of the over mighty employer. In Britain it has meant the emasculation of the one powerful trade union movement, changes in the law now make it very difficult for the unions to effectively organise industrial action. Therefore there is little restraint on the employer who wishes to pay as little as possible to his staff. It is no coincidence that some of the most profitable businesses with the highest paid directors in Britain have been the supermarkets an industry where low pay and job insecurity are endemic.

Scepticism as a philosophy is misunderstood, sceptics don’t believe are no truths, in that all philosophies or ideologies are fallacious. Instead it is the belief that in subjecting an ideology, philosophy or belief system to sceptical enquiry the truths it contains can be discovered it is the stripping away of error.

Being a sceptic is not contrary to a belief that society can be improved through reform, it is just a scepticism about the nature of such much contemporary reform, reforms whose fundamental truths are based on custom, tradition and exploitation of market power. I am a left of centre sceptic who believes in the superiority of left of centre ideology because it contains less wrongs than the alternatives and that with its emphasis on fairness those wrongs are likely to be less damaging to humanity than the wrongs of alternatives that exclude any notion of fairness. A sceptic also favours democracy as in a democracy there are always contending philosophies and ideologies as the proponents of each that will be subjecting each to scrutiny and through that many of the errors of policy associated with the mono-thought of the Neo Liberal world view can be avoided.

Unlike the interchangeable Neo-Liberals and New Keynesians who dominate the political process with their uniformity of view, I want a political culture that recognises many ideologies and philosophies as valid and that a recognition the aim of politics is not to destroy the opposition but to create a political culture in which many views can thrive. Contemporary politicians are so assured of the rightness of their beliefs that they cannot concede that they may wrong. They are as in Christine Lagarde’s word the grown ups who understand reality and who don’t indulge in childish fantasies. What a sceptic would say is that any believers in any ideology that denies it contains any errors or wrongs are the childish and naive ones.

The Musings of a Bad Economist

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While studying economics in the 1960’s, I always had the feeling that something was missing from the subject I studied. It was not just the absence of left thinkers amongst economists, I had the nagging feeling that there was a lack of a fundamental something. In a subject that is essentially about people there seemed to be a complete absence of the people factor. I was a bad economist who failed to grasp that in essence people were just another unit of production and their humanity did not entitle them to any special privileges. Only a ‘good economist’ (of which I am not one) could understand that the free market represents the epitome of human organisation in the economic affairs. Alternative such as the mixed economy, the planned economy have all failed and it is only the free market that can maximise wealth and human happiness.

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Bad economists such as myself always fail to see the bigger picture, we focus on the misery suffered by individuals as a result of economic change, failing to realise that this misery is the necessary price to be paid for changes that benefit society as a whole. We focus on the suffering caused to people by the changes that have accompanied the introduction of the deregulated and flexible labour market; ignoring the benefit to employers who now have the power to adjust the hours their staff work to fit in with the needs of business. All supermarkets now benefit from the split shift system. Formerly they had to employ staff for fixed hour shifts, so they could end up with having too many shop floor staff in slack periods. Now they can send staff home during the slack periods and recall them for a second shift during a busier part of the day. Then there is the beauty of zero hour contracts, where employers can call staff in when they need them and they can include an ‘exclusivity’ clause which means that the employee cannot take on any other work when not required by their employer, meaning they are always available for work. Being able to treat people as if they where just another resource such as a machine which can be switched on and off when needed, enables employers to maximise their profits. Good economists see the necessity of relieving the workforce of their humanity, as sick and maternity leave do little more than disrupt the productive process.

There was recently a Question Time programme on radio where an employer and ‘good economist’ lauded workers in an American factory where the workers had agreed to incremental increases in the hours they worked (without compensatory wage increases), so that in the end all staff were working ten hours a day for six days a week. They had the good sense to realise that trivialities such as the right to a family life, were merely impediments that prevented the achievement of the greater good, that is the increased profitability of the business. That in turn meant that the owners would not feel compelled to relocate their business to a country where wages were lower, accepting inhuman working conditions were a price worth paying for keeping your job.

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Income inequality is a subject that I constantly fail to understood. The ‘good economist’ sees widening income inequality as an unqualified good. Today company directors pay is about 128 times greater than the average wage of their employees, whereas in the 1980’s it was a ratio of 1 to 35. An economist would explain to an ‘economic dimwit’ such as myself, that the high pay for company executives was a necessary reward for talent. They could point to the recent example of the Co-op, where business consultants decided that the going market rate for a CEO was £3.5 million per annum. If the boss of the lowly Co-op supermarket chain can command that salary, obviously the boss of a giant bank such as HBSC deserves a much higher salary. By paying astronomically high salaries we would attract the best people to run our companies. We would all gain from the high growth that these companies would experience. The fact that I as an individual don’t seem to have benefitted from this upsurge in prosperity is that I am one of the unskilled apathetic who don’t deserve a wage increase.

Perhaps the doyen of free market economists or ‘good economists’ was the Chicago economist Milton Friedman. He understood why President Pinochet’s government on seizing power had to lock up and kill many of their political opponents. It was necessary for attainment of a greater good the introduction of a free market economy. These opponents, many of whom were trade unionists, would have opposed the free market reforms that the government intended to introduce. He could see that in the greater scheme of things, the death of a few trade unionists meant little compared to the increase in wealth for all from that came the introduction of the free market economy. There are right greater than the right to life, if you are the wrong kind of person. Death was merely one way of marginalising opponents of the free market.

When the reforms failed to deliver the promised wealth for all, it was pointed out by economists that it was the fault of individuals not the system. The talented and hard working had become rich, while those lacking the true entrepreneurial spirit remained mired in poverty. It should not be expected that economy should provide for those lacking in skill or drive.

I confess to be an economic slower who would want to reserve all the changes in the labour market, that have led to Britain becoming the low wage capital of Europe. It was not so long ago that a Korean company opened a factory in Wales because wages were lower there than in Korea. To reverse these changes I would introduce tougher wage regulation imposing a minimum wage never the ‘living wage’ and ensure that it was enforced. At present it is left to the goodwill of employers to pay the minimum wage. Since its introduction there have been no prosecutions of employers who flout this law. Job insecurity which imposes untold misery on millions I would reduce by re-introducing the job protection measures removed by successive governments since 1979.

A ‘good economist’ would see this as folly, he would gently take me aside and tell me that my proposals would work to the detriment of the labour force. They would point out that Ian Duncan Smith’s reforms that have reduced many to living in poverty are in reality a good thing, it is misguided individuals such as myself that misunderstand their purpose. Before the advent of Ian Duncan Smith far too many individuals were mired in the dependency culture. They had become individuals with no purpose in life other than to collect state benefits on which to subsist. These apathetic, aimless creatures spread misery, neglecting their houses and letting them and their neighbourhoods deteriorate too such an extent that they resemble Victorian slum areas. Reducing their benefits to a level less than on which it is necessary to subsist means they will be forced to find work. Once in work they will learn the pleasures of a life independent of benefits and they will gain immeasurably in self respect. Pushing these people into a poverty enforced misery will make them change their ways, it will eventually create a race of sturdy self reliant individuals.

Such a person would tell me that I misunderstand the benefit of low wages, it gives the worker the incentive to work harder. They also would say that what is wrong with the low paid worker having to have two or three jobs to make ends meet. It teaches them that nothing comes to them unless they work for it. They are incentivised through poverty level wages to work for self improvement. We need to instil into the workforce the work ethic that would be the most effective driver for prosperity. A living wage would have the reverse effect, it would mean that the lazy and incompetent would get the same wage as hard working and clever. This would be self defeating as the costs of production would be pushed up through having to over pay poor workers, thereby increasing prices, reducing sales, followed by staff lay offs. The poor need to be motivated by fear, they are a different in nature from the talented company directors who need high pay to be incentivised to perform at their best. They are a totally different type of being that responds better to rewards than fear.

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As a bad economist I have this nagging feeling, I do not see after having thirty years of the free market that it has delivered on the promises made by its advocates. Certainly a small elite group have done excessively well out of the reforms, but what of the majority. Incomes for the majority have in real terms remained stagnant since 2003. House prices are spiralling out of control to such an extent the trend to home ownership has gone into reverse. Surveys suggest that the sense of national well being peaked in the mid 1970’s, not in the free market noughties. Is it possible that the benefits of the free market economy are merely illusory? In Stalin’s Russia of the 1930’s one five year plan after another was produced, always promising that at the end of each plan the communist nirvana would be achieved. All that happened was that nirvana seemed to recede further and further into the distance, somewhat like George Osborne’s plans. He promised remove the structural deficit by 2015, now its 2018, whereas in 2017 it will be put back to 2020 and so it will continue. Can I suggest that instead that a change of direction in government policy, one that takes account of the hesitations of bad economists such as myself. Bad economists prefer to look at the world as it is, not try to make it conform to some imaginary model.