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Federal

Jul 25, 2017

Keane: we're missing the point on inequality

Arcane debates about measures of inequality don't deal with the day to day perceptions of voters of an economic system that has stopped delivering for them.

Is inequality in Australia getting worse? Is the Gini coefficient going up or down? Who’s right, Bill Shorten or Scott Morrison and the conservative newspapers beating the bushes for academics who’ll back them up?

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10 thoughts on “Keane: we’re missing the point on inequality

  1. Nereus

    There are two types of inequality that matter, one measured by wealth, and one by inter-generational change in wealth. In a genuinely merit based society, the sort of society I believe in, we could tolerate a great deal of inequality of income or wealth provided that we were confident the differences in income and wealth were a consequence of individual talent and effort, and not who your parents were or whose back you rubbed. Lots of people say they believe in equality of opportunity and merit based advancement, but only an exceptional few really do. Australia does not fare as well in the inter-generational equity stakes as Andrew Leigh thought we did – based on Mendolia and Siminski’s work we are in the bottom third for inter-generational mobility, whereas Andrew had us about middle of the pack. Inequality matters, but what matters more is when your lived experience is that you cannot get ahead when you work hard and long and well, and people you know are freeloaders and wealthy by inheritance rather than work wiz by you in their new leased sports car to a mortgage free home in the eastern suburbs.

    1. Barbara Haan

      Your last sentence reminds me of correspondence I had with an American who had the misfortune of sharing a room with Dubya in his first year at Yale. He couldn’t believe how dumb GWB was, or how lacking in interest he was in academic pursuits. Said guy was furious because he got there on merit, not family background.

  2. Robert Smith

    Since most of us think we are working or middle class and are hard workers, it should be easy for Shorten to persuade us we are being dudded by all the others.

  3. Hunt Ian

    Well said Bernard. Neoliberalism should indeed be take out the back and shot, as Paul Keating has, perhaps belatedly, realised. The problems you identify are real but the growth in inequality brought about by neoliberalism is not entirely due to the important factor noted by the IMF. It is also brought about by the fantasy belief, integral to Neoliberalism, that “it is as if” the economy works like the economy modelled in neo-classical economic theory.
    A sad belief that everything that can possibly be turned over to private capitalists should be turned over to them and governments should maintain only a minimal state with low taxes s also part of neoliberalism and is responsible for the dreadful cost of toll roads, especially in NSW. It is responsible for the weird belief that free trade in gas will be wonderful because it is free trade. It overlooks the reality that gas is a scarce resource and that it is absurd to allow unbridled developed of LNG exports, which draw heavily on electricity for refrigeration of natural gas and thereby not only increase demand for power but soak up a key resource like natural gas, whose price can be used under the NEM rule as the base on which wholesale electricity prices are built. Markets do not work in the real world “as if” they were perfectly competitive complete markets of neo-classical economic theory. Neo-liberalism is thus responsible also for the surge in electricity prices, driven by the fantasy rules of the faux NEM.
    Real incomes measured by averages of cost over the country fail to recognise the significant local costs that workers and traders suffer from road tolls and rising electricity prices.
    As Bernard says, enough of the electorate will no longer believe that a government’s only concern is with “growing the pie” rather than with how the “pie” is divided. It will no longer believe that economic growth, like a rising tide, will lift all boats. It will to demand that the NBN be second rate and that a significantly commercial rate be charged so that it can later be privatised, with all the benefits that the privatisation of Telstra has brought poorer Australians.

  4. Geoff Davies

    The great nonsense of the neoliberal era: “Everyone has done well from a more open economy”. Sorry, neoliberalism has *never* matched post-war social democracy.
    1950s-60s averages: GDP growth 5%+, inflation 3.3%, unemployment 1.3%. Stephen Bell documented it 20 years ago, but facts never get in the way of the mantra. The major problems of the 1970s were oil embargoes and US printing money – transient problems that would have been managed.
    If you also counted reduced services, increased corruption of democracy, house prices and job insecurity you’d get closer to why people are pissed off about inequality.

  5. Tony Syad

    I suspect that the real problem is that a whole generation of managerialists did not understand the social contracts underpinning their industry concerning product/service quality, training of the next generation, investment in society and partnership with consumers. Now the public has withdrawn its trust and agreement. The major banks have spotted this but not voluntarily.

  6. Dog's Breakfast

    Well said, everyone.

    One of the problems with economics is its utterly self-referential nature. For more rigorous reasons of why inequality hurts economic growth one must venture into psychology, where much research shows that co-operation and productivity are sorely affected by a sense of unfairness. It doesn’t even have to be real, but in this case it is.

    Gini co-efficients are academic exercises, not scientific ones, and should only be looked at as a curiosity. Wealth in Australia is overwhelmingly an issue of being born in the right family, not one of merit. Hard work gets you callouses, more likely than riches.

    Then there is the welfare issues, where the most vulnerable – unemployed and the unwell/disadvantaged, are being hounded off and paid little, and having to pee in a jar for the privilege.

    As a group, we are not quick to pick up how utterly we are being screwed, by the wealthy, for the wealthy. The light is coming on, but ever so slowly.

  7. JQ

    Increased crime is also a result of increasing inequality. It’s not poverty that is a necessary determinant of high crime, it’s relative poverty. Several studies in the united states have demonstrated a significant correlation between the two.

  8. AR

    It is demonstrably untrue that neolib nonsense “has made us all wealthier..” unless one is only counting the number of dollars rather than their value.
    Try telling a couple with kids who are both working all the hours they can to afford what the older siblings, never mind parents & grandparents had – an affordable house, a home life, time to enjoy the aforesaid, any hope that their kids will be even better off etc.
    BTW, “Inequality isn’t a harmless, if annoying, by-product of neoliberalism…” it is an integral feature of the system.

  9. Rex Bevan

    Bernard

    The IMF views on the negative effect of inequality on economic growth that you quoted makes Scomos argument that by the ALP aiming its guns at inequality leaves it without a growth policy look plain silly.

    And the Coalitions ‘growth” policy-Company tax cuts, as if the Company tax rate explained the weakness in new investment. Just another variation on trickle down economics.

    One of the basic tenets of economics is that poor people have a higher marginal propensity to consume than rich people, which perfectly explains why greater inequality leads to lower aggregate demand, lower economic growth and ultimately to lower new investment.

    Keep up the good work.

    Rex Bevan