Gordon Campbell on income inequality, and yo ho ho Christmas songs

As 2014 grinds to a close, we probably didn’t need one more reminder of this government’s ability to stare reality in the face and declare black to be a very fine shade of white. As you’re probably aware, the OECD has just released a research report that has rejected trickle down economics as an illusion, and found that policies that promote income inequality are not only bad for society, but bad for economic growth. The OECD also happened to cite New Zealand and Mexico as the most spectacular examples of this damaging relationship.

Yet on Wednesday, there was Finance Minister Bill English trying to tell RNZ that the OECD was (a) wrong (b) using old data and (c) somehow anti-growth and in any case (d) New Zealand allegedly already had a strongly re-distributive tax system, and the only way forward was to trust that National’s current economic policies would (somehow) eventually lift everyone’s boat, despite clear evidence in the OECD report to the contrary. According to English, it wasn’t that his current economic settings were making a bad situation (i.e. bad for society and bad for economic growth) even worse, but that we just needed to keep the faith and press ever onwards. It has, after all, only been 30 years since Roger Douglas first told us that free market economics would soon deliver unto us, a miracle.

On every one of those points above, English was demonstrably wrong. (Old data ? Given the OECD’s conservative estimate of a five year time lag in its ability to measure the feedback loop between economic policies and inequality outcomes, 2005 was actually the latest measurable period.) Rob Salmond has also once again, destroyed English’s repeated erroneous claims about who pays how much tax. And given that the wealthy got the biggest rewards from the 2010 tax cuts package, the income inequality/growth relationship will have only got worse since 2010. Not to mention that if 2005 really was such old news, why was English himself harking back to the early 1990s for proof that his policies would work? One thing was very clear: in a world where trickle down economics now has few people still worshipping in its pews, the Man From Dipton can still be counted as a true believer.

As For John Key….who needs Cameron Slater, when you’ve got the mainstream media to recycle Beehive spin? Here’s how the NZ Herald put it this week:

Prime Minister John Key drew criticism from Opposition parties yesterday over an OECD report which estimated that growth in income inequality from 1985 to 2005 has knocked 10 percentage points off New Zealand’s economic growth.

But Labour was in Government for 11 of the 20 years in question, and Mr Key said he could not be blamed for things that happened when he was not prime minister.

Again, this is total bullshit. There are two crucial measurement periods in the OECD report. Yes, 1985 – 2005 is the timeframe for income inequality but the period for the economic growth drivers for almost all countries surveyed (including New Zealand) was 1990-2005. Given the five year time lag adopted, this means that blame for only the first five years (1990-95) can be laid at the door of the Rogernomics policies being promoted by the fourth Labour government. So instead of National being in power for less than half the time (9 years out of 20) it was actually running the economy in two thirds (10 out of 15) of the relevant period.

Moreover, and consistent with the OECD findings, once in power the Clark government enacted policies (such as Working For Families) that briefly halted the drift towards greater inequality, which National has since re-ignited with its regressive tax cuts and welfare reform packages. So….there is absolutely no way that National and its chums in the Act Party can escape major responsibility for the socially destructive growth in income inequality in New Zealand, and for the subsequent drag this has had upon economic growth. Using the estimates contained in the OECD report, the levels of income inequality recorded here could have caused a decline of up to 14% in economic growth.

There is nothing much that’s new in any of this. In the 1990s, economist Paul Dalziel showed how much wealthier New Zealand would have been if we had emulated the more moderate reforms enacted by Australia, instead of following Roger Douglas on his ruinous path. In March of this year, the IMF had already reported findings very similar to those announced this week by the OECD. In the wake of the findings, Jonathan Ostry, the IMF’s deputy director of research, outlined to the Financial Times the three necessary elements for economic growth:

“The three pillars are: an inclusive labor market – e.g. structuring labor markets to ensure low unemployment. [Secondly] investments in human capital – which means good skills training and education programs. And finally, redistribution of some of society’s wealth or income toward the relatively poor through various transfer programs…”

None of those elements characterise the Key government’s economic policy framework. Rather than seeking an active role for the state in pursuing low unemployment and well paying jobs, that state’s labour market role under the Key government has largely been limited to driving down labour costs. Similarly, the investment in education and skills training – such as there is – has been framed in terms of short-term employer need, and not long-term national benefit. Finally, redistribution is not being promoted as a social/economic good, but as a grudgingly delivered necessity, the entitlements to which should be ruthlessly and continuously pruned back.

The alternative approach that both the OECD and IMF are now promoting is not left wing idealism. It is how they think a modern economy actually works. Long ago, mainstream thinking in the IMF and OECD abandoned the neo-liberal raft to which the New Zealand government still clings. Here’s Ostry of the IMF again. As he says, inequality cannot be left to look after itself until we – magically – achieve economic growth:

First, inequality matters, not only for its own sake but also because it makes an important difference to the level of economic growth. More unequal societies have slower and more fragile economic growth. It would thus be a mistake to imagine that we can focus on economic growth and let inequality take care of itself. Importantly, we established that growth is faster in more equal societies than in less equal ones, regardless of whether they have highly redistributive tax systems. The lower growth observed in highly unequal societies does not seem to be a side-effect of re-distribution, as some people have claimed.

Ostry’s second point is relevant to the flat tax crew within the Act Party. Evidently, taxes aren’t (much of) a drag on economic growth:

We found little to suggest that a modestly redistributive tax system has an adverse effect on growth. True, there are some signs that highly redistributive tax systems – the top 25 per cent of our sample – may crimp economic performance. But the levels of redistribution seen on average in the broad cross-section of countries we looked at seem to have had negligible direct effects on growth.

And finally:

Put these two observations together and you come to an important conclusion for policy. Making the tax system modestly more redistributive seems to have little direct effect on growth. Over time, however, it will result in a more equal distribution of income – and that, in turn, seems to lead to higher growth. Taking into account the direct effect of redistribution, and the indirect effect that operates through reduced inequality, we find that average levels of redistribution are associated with higher and more durable growth. Even large re-distributions – undertaken presumably with the goal of improving equality – do not seem to carry a clear growth cost.

Unfortunately, it is not as if the new blood in the National/Act government bring any hope of renewal. The centre- right’s intake of 2014 is, if anything, even more simplistic and doctrinaire in their approach to the economy, than the current leadership. David Seymour, Chris Bishop, Todd Barclay etc have all been raised on the Little Golden Book version of Rogernomics, and on the idea that markets are essentially self-equilibriating systems.

So income inequality is likely to worsen, and economic growth will remain highly dependent on demand from China and Australia. (That’s what got us through the GFC.) Sinfully and successfully, China and Australia then – just like the US is now – were more than willing to pursue a range of active, stimulatory, interventionist policies that our traders benefitted from, even while we claimed to abhor such policies here at home. Growth is now faltering in both China and Australia… From here until 2017, it will be interesting to see how the Key/English economic policy settings will fare, given that New Zealand will need to paddle its own canoe a whole lot harder. Collapsing dairy prices are only the start of it.

Christmas Cheer!
Being predictable is one of the prime attractions of Christmas. Those carols, those same old songs…To vary the mix somewhat, a few brave souls like Sufjan Stevens have tried their hand at writing new Christmas songs, with mixed results. (Not many people have managed to listen to Sufjan’s ‘Christmas Unicorn’ – surely, the Gravity’s Rainbow of Christmas songs – all of the way through.)

Here are a couple of much older Christmas obscurities. The Hepsters were a doowop group (and good friends of the guys who later became the Temptations) and their 1955 effort ‘Rockin’ and Rollin’ With Santa Claus’ is just about my favourite secular Christmas song. In this video, someone has used it as a soundtrack for their child riding a bumper car in Swansea, November 2014. It makes for a nice combination.

And then from 1948 there’s Julia Lee and Her Boyfriends – a group that specialised in double-entendre ‘dirty blues’ – doing a sultry but (relatively) sanitised track called “Christmas Spirit”…

And finally, the Ramones and their great “Merry Christmas (I Don’t Want to Fight Tonight)” really get into the seasonal spirit of violence, sentimentality and undying resentment….

while Sufjan‘s “Mr Frosty Man” has become a seasonal classic, chainsaws and all.