Dani Rodrik, Gabriel Zucman and Suresh Naidu have a new project out, one to provide us with an economics to replace neoliberalism. That neoliberalism they define as market fundamentalism. Sadly, they’re wrong.
Yes, I know, brave words from a mere journalistic scribbler to leading contemporary economists, at least one of which I’m reasonably certain will end up with a share of a Nobel at some point. And yet still true.
Their opening line, their justification:
We live in an age of astonishing inequality.
No, we don’t. We live in an age of astonishing and increasing equality. Thus any set of policies, any series of analysis, that flows from this misunderstanding of reality is going to be wrong.
And that’s all we really need to know about it all.
The problem is that their measurements – the ones they’re paying attention to – of inequality just aren’t the useful ones, the ones we’re interested in. They’re usually pre-tax, pre-benefits. They’re always pre-government supplied services. And they never, ever, look at the thing we’re actually interested in, inequality of living standards.
To give an example, the Trades Union Congress did a calculation a few years back looking at top 10% households in the UK and bottom 10%. They took the average of each decile – so, the average of the top 10% households, the average of the bottom. Then they looked at the ratio between them.
The top 10% gain some 12 times the market income of the bottom 10%. Now take account of taxes and benefits. Then add in the effects of the NHS, free education for all children and so on. Government services. We end up with a ratio of 4 to 1. Life as it’s actually lived gives the top 10% four times the final income – income being defined by consumption of course – of the bottom 10%.
That’s not a high level of inequality.
And that’s before we even get to what the market is also doing. You and I get the same amount of Facebook at the same price as Bill Gates. We actually get rather more Google as his own loyalty means he has to use Bing. The value here is considerable. One possibly excessive but potentially reasonable estimate has each of us enjoying $18,000 a year in consumer surplus from that existence of free at the point of use search engines. Perhaps $4,000 a year from email and $800 from Facebitch.
Drop another $20,000 onto the consumption – OK, consumer surplus – of each and every rich world person and our world is looking increasingly equal, isn’t it?
Or take wealth inequality – absolutely all of those wealth measures entirely ignore the capital value of anything at all that government does. State pensions are not included – private sector fully funded ones are. Equity value of housing after debt is counted – the capitalised value of below market rents is not.
We simply do not live in a world of astonishing inequality. Thus everything that follows from them is wrong.
And that is all we need to know.