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Speaker: Inequality: Too big to ignore

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  • Rosemary McDonald,

    "So this report – demolishing a key argument against inequality,"

    perhaps that should be "Key" argument, Max?.

    ".... backing redistribution, and pointing out New Zealand as the country worst affected"

    The measured cost of our 'rockstar' economy?

    "... is a landmark one, and may represent the moment when inequality really became too big to ignore."

    Unfortunately, the moment will pass...

    Waikato, or on the road • Since Apr 2014 • 1346 posts Report Reply

  • Bart Janssen,

    Oh you and your silly facts.

    Our government has polled the people of New Zealand and found that they want us to continue to make the rich richer and the poor poorer – far be it for us (rich bastards) to argue with the will of the people.

    Quite simply this government has shown utter contempt for evidence showing that its ideology is false and I see no indication that any change will occur in the next three years.

    Auckland • Since Nov 2006 • 4461 posts Report Reply

  • BenWilson,

    I've thought inequality stifles growth for a long long time, but just as a devil's advocate, for a moment, can I ask the question: How do we know which causes which? We can see that lower growth is correlated to rising inequality, but perhaps low growth causes rising inequality, rather than inequality causing lower growth?

    I do think that mostly the causation is the other way, since the mechanism is clear - the wealthier one is, the less one spends as a fraction of what one has/earns. Money flow is like the blood in a the body of the economy, and if it stops flowing, the body doesn't function so well. Money pretty much exists for this purpose, to move economic goods around faster and more efficiently, rather than accumulating in stagnant piles.

    But one could argue that it is the inactivity of that body that caused the blood to slow. An actual decline in the desire to spend money across the board could slow the economy all by itself. Perhaps a critical mass of comfort can be socially reached that creates inertia all by itself.

    It seems like a complicated question. I'd like a good answer to it.

    Auckland • Since Nov 2006 • 10657 posts Report Reply

  • Rosemary McDonald,

    Perhaps a critical mass of comfort can be socially reached that creates inertia all by itself.

    It seems like a complicated question. I’d like a good answer to it.

    I'd love to give it a go....but it would take pages...

    Suffice to say, one reaches a certain level of finnancial constraint, with no hope (besides death) of any improvement in income....you simply stop spending on anything other than neccessities.

    And this becomes normal.

    For more folk than perhaps you'd realize.

    Waikato, or on the road • Since Apr 2014 • 1346 posts Report Reply

  • Bart Janssen, in reply to BenWilson,

    How do we know which causes which?

    You can't do a controlled expt, nobody will let you.

    But you can observe societies where inequality has changed and observe changes in economic growth. Since multiple societies have shown the same correlation it becomes less likely that there is another factor driving the relationship since the different societies tend to vary in the other factors.

    However, there is no clean single variable experiment, so there is always sand available in which people can bury their heads.

    Auckland • Since Nov 2006 • 4461 posts Report Reply

  • Kyle Matthews,

    may represent the moment when inequality really became too big to ignore.

    Yeah, I think you underestimate our ability to ignore large elephants in the room.

    Since Nov 2006 • 6243 posts Report Reply

  • Max Rashbrooke, in reply to BenWilson,

    It's a good question, Ben, and the quickest answer in this case is that the OECD have done the timing so that it has to be that inequality leads to reduced growth, not the other way around. Their data takes rising inequality 1985-2005, then looks at what happened with growth 1990-2010 (i.e. allowing a five-year lag for the effects of rising inequality to be felt).

    New Zealand • Since Dec 2014 • 2 posts Report Reply

  • Sacha,

    Bill English tells RNZ the report is wrong (and Guyon does not let him off the hook). Then Grant Robertson says it's right while Susie Ferguson spends most of her time trying to blame previous Labour govts.

    Ak • Since May 2008 • 19745 posts Report Reply

  • Sacha, in reply to Bart Janssen,

    this government has shown utter contempt for evidence showing that its ideology is false

    You'll love the English interview.

    Ak • Since May 2008 • 19745 posts Report Reply

  • Rosemary McDonald,

    This...http://www.stuff.co.nz/life-style/home-property/63533041/time-to-give-up-homeownership-dream

    ...is inequality that simply can't be ignored.

    Young people, well educated, working HARD.

    Told to "grow up and move on.."

    By whom?

    So, my hard working adult child and their partner, having desperately been trying to save for a deposit on a home (not in Auckland), have just about given up.

    So...are spending a little more on non necessities...$$$ that were going into savings.

    Now going into the tills of the retailers.

    Who probably own rental properties.

    And so it goes.

    Waikato, or on the road • Since Apr 2014 • 1346 posts Report Reply

  • Rosemary McDonald, in reply to Max Rashbrooke,

    growth

    What does that word really mean?????

    Waikato, or on the road • Since Apr 2014 • 1346 posts Report Reply

  • BenWilson, in reply to Bart Janssen,

    But you can observe societies where inequality has changed and observe changes in economic growth

    Sure, which is what is done, and the correlation is well established. But how do you make a sound inference about the direction of causation? Correlation is pretty good indication of some kind of causation at work, for sure. But so long as a credible mechanism can be specified to describe the causation in either direction, how does one establish which is the stronger?

    I have always presumed the answer lay in analyzing the timing of specific changes - implement a measure specifically aimed at inequality, then observe changes. It's an experiment of sorts...

    You can’t do a controlled expt, nobody will let you.

    Is that the only reason a controlled experiment can't be done, or is it impossible, even if we could get to the point of being allowed to experiment? It seems to me that in theory, economic experimentation is possible, and if questions are unsettled that could be reasonably clearly answered, it's very, very well justified. Since the alternative is just claiming to know the answers anyway, without evidence. I know it's very hard to get anyone to buy into being the control group for poverty, but every country makes conscious economic decisions all the time, and the idea of "let's try it and see" hardly seems evil to me, quite the opposite. This is, after all, an extremely important question. In fact, I'd say a refusal to approach the idea scientifically, and to insist on pretending to know all the truths of economics the way our politicians always do, seems far worse.

    Auckland • Since Nov 2006 • 10657 posts Report Reply

  • Ian Dalziel,

    Farmgate scandal?
    I wonder how the almost halving of Fonterra's milk price to $4.70 per kilo (from last years $8.40) will impact local communities and the country in general?

    Time to put some the few eggs left in another basket methinks...

    Christchurch • Since Dec 2006 • 7953 posts Report Reply

  • BenWilson, in reply to Max Rashbrooke,

    Aha, you answered while I was guessing. Timing is a fairly obvious answer. Does the methodology seem sound to you? I guess the obvious question is: Does the same apply in reverse? Can one pick growth changes and then look for lagged inequality correlation? If so, then it’s still not clear to me how one unpacks this, other than through deliberate and conscious experimentation.

    ETA: And once again, just to be clear, this all devils advocate. I strongly believe that what the OECD found is correct, since the mechanism just seems more believable at a microeconomic level. But strong belief is no substitute for actual scientific understanding.

    Auckland • Since Nov 2006 • 10657 posts Report Reply

  • Ian Dalziel, in reply to Rosemary McDonald,

    up, up and a whey...

    growth
    What does that word really mean?????

    I think it's what milk is supposed to promote...
    meanwhile they continue to use milk as an economic lubricant
    (which is all money is anyway)...

    for some 'growth' is maturation,
    for others it's a tumour.

    Christchurch • Since Dec 2006 • 7953 posts Report Reply

  • David Haywood, in reply to Rosemary McDonald,

    The measured cost of our ‘rockstar’ economy?

    Oh, ye of little faith!

    Arguably the New Zealand economy is indeed like a rock star -- think Jimi Hendrix, Janis Joplin, or Jim Morrison. Or, for a more contemporary rocker, Amy Winehouse.

    Dunsandel • Since Nov 2006 • 1156 posts Report Reply

  • Max Rashbrooke, in reply to BenWilson,

    Good questions ... The methodology looks thorough. I'm not an econemetrician, so can't say exactly that it's correct. But it's like climate science - you go with the repeated, peer-reviewed stuff - and we now have two major reports, OECD and IMF, arriving at the same point using different methods/data sets, so it looks rigorous.

    New Zealand • Since Dec 2014 • 2 posts Report Reply

  • Rosemary McDonald, in reply to Ian Dalziel,

    Hmmm....

    Our wee acre of supposed pastoral bliss is bordered on three sides by a 999 acre/1000 cow dairy farm.

    The owner we purchased our acre from....a rockstar of the dairy industry in his time...had to sell, as the wolves came baying for their due. He was a bully...so few tears were shed in the 'hood.

    The new owners have had a similar attitude that since they are producing the white gold...they can do whatever they like despite negative impacts on their neighbours.

    We will certainly not be shedding croc tears for them...with the prices whey down.

    Waikato, or on the road • Since Apr 2014 • 1346 posts Report Reply

  • BenWilson, in reply to Max Rashbrooke,

    and we now have two major reports, OECD and IMF, arriving at the same point using different methods/data sets, so it looks rigorous.

    Yes, and both from organizations that could hardly be accused of having been raving hotbeds of radical leftwing economists.

    you go with the repeated, peer-reviewed stuff

    That's what policy makers should do, certainly. Unfortunately, that's also what they did when that orthodoxy was all around growth at the necessary expense of equality. Which leads to that horrid neck of the woods that sees economics in terms of class struggle rather than assuming that those in control of it actually even want equality, or see it as a good at all.

    Auckland • Since Nov 2006 • 10657 posts Report Reply

  • Ian Dalziel,

    Speaking of inequality...
    ..Happy Human Rights Day everyone!

    This year’s slogan, Human Rights 365, encompasses the idea that every day is Human Rights Day. It celebrates the fundamental proposition in the Universal Declaration that each one of us, everywhere, at all times is entitled to the full range of human rights, that human rights belong equally to each of us and bind us together as a global community with the same ideals and values.

    Christchurch • Since Dec 2006 • 7953 posts Report Reply

  • Bart Janssen, in reply to BenWilson,

    It seems to me that in theory, economic experimentation is possible

    To be fair governments are constantly experimenting. The problem is multiple variables are almost always changing simultaneously. Hence the problem determining cause or effect.

    You end up with "yes you improved the economy, but not because you reduced inequality but because of X Y or Z other things that changed and inequality only changed because you improved the economy"

    You can waste time and effort trying to convince people with that view or you can simply change the government to one that believes in fairness in the first place.

    If you can show examples in both directions it gets more likely that you can ascribe one to cause and the other to effect.

    But getting evidence that will convince a rich businessman that it's a good idea for them to pay more tax is nigh on impossible.

    Auckland • Since Nov 2006 • 4461 posts Report Reply

  • Matthew Poole, in reply to BenWilson,

    Is that the only reason a controlled experiment can’t be done, or is it impossible, even if we could get to the point of being allowed to experiment? It seems to me that in theory, economic experimentation is possible, and if questions are unsettled that could be reasonably clearly answered, it’s very, very well justified.

    How would you set up the necessarily-controlled macroeconomic environments in which to conduct such experiments? You need a country-sized (or at least one the size of a large city) economy with which to experiment, and another one to act as the control.
    Really you need at least a couple of each, to ensure that you have a valid sample, and the experimental economies need to be sufficiently different from each other but sufficiently close to their controls that other factors can be eliminated.

    It’s effectively impossible to do proper correlation vs causation experiments with macroeconomics. One can observe outcomes of macroeconomic changes within similar economies, but to achieve full control of the entire economic environment such that there can be no other agents of change except the policy setting(s) under investigation is getting into the realms of the all-powerful, all-seeing omnipotent deity of the Judeo-Christian faiths.

    Auckland • Since Mar 2007 • 4097 posts Report Reply

  • BenWilson, in reply to Rosemary McDonald,

    >growth

    What does that word really mean?????

    In this context I think it's just a measure of the change in GDP, or maybe GDP per capita. It's always been a very fraught measure to try to maximize, because it doesn't directly measure the general welfare of people at all, and the "boundary of production" is very open to interpretation. What is and is not productive behaviour? For instance, child rearing is typically not paid, but it can be hard work and is clearly of value to society in the long run. But it's popular because it's some kind of measure of the total economic power of a country. Which is why it has to be contrasted to other measures like equality, and the relationships between them need to be discovered.

    Auckland • Since Nov 2006 • 10657 posts Report Reply

  • BenWilson, in reply to Matthew Poole,

    Just quickly, because I have to pop out for some unproductive behaviour, I don't claim to know the answer, hence the question. Try popping the other hat on for a sec and tell me how it could be made more scientific...I'd be interested to see what you can come up with.

    Auckland • Since Nov 2006 • 10657 posts Report Reply

  • Ian Dalziel, in reply to Matthew Poole,

    It’s effectively impossible to do proper correlation vs causation experiments with macroeconomics.

    If only we had something like a World Bank that would look into this sort of thing with no strings attached...
    oh, hang on!

    Christchurch • Since Dec 2006 • 7953 posts Report Reply

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