Thursday, June 6, 2019

Jonathon Aldred - ‘Socialism for the rich’: the evils of bad economics

The economic arguments adopted by Britain and the US in the 1980s led to vastly increased inequality – and gave the false impression that this outcome was not only inevitable, but good. 

If you live in a harsh society and have to work as hard as you can just to stop yourself falling into hell, you may develop a harsh attitude to those that are poor seeing them as undeserving. Europeans tend not to live in such a harsh environment and so tend to be more generous towards the poor, besides, you never know when you may fall on hard times yourself and need the welfare state as well. Socialised medicine helps too, pooling risk, which lowers anxiety improving well-being. It's really nice and Europeans would never do without it.

Psychologists have shown that people have motivated beliefs: beliefs that they have chosen to hold because those beliefs meet a psychological need. Now, being poor in the US is extremely tough, given the meagre welfare benefits and high levels of post-tax inequality. So Americans have a greater need than Europeans to believe that you deserve what you get and you get what you deserve. These beliefs play a powerful role in motivating yourself and your children to work as hard as possible to avoid poverty. And these beliefs can help alleviate the guilt involved in ignoring a homeless person begging on your street.

Is tax really a burden? Without government, the law, and  the regulations, business would never prosper, and so tax makes you rich. Since we have been lowering taxes most people never become poorer. The supply side economists said low taxes would boost business and so the government would end up collecting more revenue instead, and they also said the pie would get bigger and everyone would have more, but neither happened. 

This is not just a US issue. Britain is an outlier within Europe, with relatively high inequality and low economic and social mobility. Its recent history fits the cause-and-effect relationship here. Following the election of Margaret Thatcher in 1979, inequality rose significantly. After inequality rose, British attitudes changed. More people became convinced that generous welfare benefits make poor people lazy and that high salaries are essential to motivate talented people. However, intergenerational mobility fell: your income in Britain today is closely correlated with your parents’ income.

If the American Dream and other narratives about everyone having a chance to be rich were true, we would expect the opposite relationship: high inequality (is fair because of) high intergenerational mobility. Instead, we see a very different narrative: people cope with high inequality by convincing themselves it is fair after all. We adopt narratives to justify inequality because society is highly unequal, not the other way round. So inequality may be self-perpetuating in a surprising way. Rather than resist and revolt, we just cope with it. Less Communist Manifesto, more self-help manual.

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