Realist, not conformist analysis of the latest financial, business and political news

If Only Frances Ryan – Or The Guardian – Knew Anything About Economics

That some people have differing views than us capitalist pig dogs is fine, just fine. We are, after all, the liberals around here, freedom and liberty mean that people do indeed have the right to disagree with us. But it is views, morals, desires, which are free to choose, not the basic facts about the universe. You know, those facts which are sacred rather than the comment which is free?

Which brings us to The Guardian, its columnists, and our exemplar for the day, Frances Ryan. To argue, as she does, that the likes of you and me must stump up much more to be sent to the likes of her, well, liberty etc. But we do need to be insisting upon the facts:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Economic downturns, by definition, hit poor and disabled people hardest, while those with the greatest wealth enjoy the profits.[/perfectpullquote]

That’s not actually true. In fact, it’s the opposite of the truth. We will do Ms. Ryan a favour and assume that she gets this so entirely, 180 degrees, wrong from ignorance rather than malice but that’s as far as we’re willing to go in excusing it. We’d sorta hope that The Guardian’s editors include someone or other who is sufficiently numerate to spot the error but then don’t we so often hope in vain?

This isn’t quite GDP accounting but it’s close. Divide incomes – incomes being 100% of GDP of course, as any fule kno – into that standard GDP set. Capital share, labour share, mixed income (essentially, but not completely, self employed income like that of Ms Ryan and myself) and subsidies to production and taxes on consumption. Of these it is the capital share then the mixed income which vary the most over the business cycle. Labour income varies *less* over the peaks and troughs of booms and recessions. Now add the one more thing. Benefits income varies less than any of them. This is why we so delight in the automatic stabilisers beloved of Keynesian economics in those slumps.

Think it through. Recessions mean a smaller economy – that’s the definition, that GDP falls for two or more consecutive quarters. GDP is the sum of all incomes. So, aggregate income falls in a recession, this is definitional. Benefits don’t fall in a recession. Thus benefits rise as a portion of all incomes in a recession.

No, don’t go there. You can’t start shouting about austerity. That’s a Tory government doing that (we’ll not have the argument here about how government spending hasn’t actually fallen). There’s nothing inherent in a recession or economic down turn that means cutting benefits. Which is, of course, an argument The Guardian often puts forward. That they shouldn’t have been cut recently. This means that if they shouldn’t have been cut because recession therefore it’s not necessary for them to be cut because recession. It ain’t the recession that cut benefits, it’s Tories. QED.

Richer people gain a greater part of the capital share of the economy than do poorer. Obviously – profits go to the capitalist fatcats who sit atop the economy. Profits fall more than other incomes in a recession, both fall more than benefits, plutocratic pigdogs gain more of their income from profits and the lumpenproletariat from benefits. It’s the rich hit hardest by recessions and economic downturns.

This is why the Gini index, measuring inequality, falls in recessions. This is why measures of relative poverty fall in recessions.

So much for theory. How well does this accord with reality? Fortunately the Office for National Statistics keeps the numbers for us here:

Note how poor incomes rise, rich fall, in a recession


That is, Frances Ryan is entirely clueless of the effects of recessions, economic downturns, on the income distribution. But then you know, Guardian columnist.

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3 years ago

Economic downturns, by definition, hit poor and disabled people hardest, while those with the greatest wealth enjoy the profits. The latter half of this sentence is, as you point out, complete nonsense as profits tend to fall in an economic downturn. The first half of the sentence is debatable, however. It is true that in the last recession, for example, the income of the richest fell most. In that sense Frances Ryan was wrong. However, it is also true that if you have a top decile high income and it falls by (say) 25% then the impact it will have… Read more »

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