Monday, August 18, 2008

Easton on distribution

In his Listener column a couple of weeks ago, Brian Easton pointed out a basic truth of politics: while packaged as being about "growth", most political debate is really about distribution:

Merrill Lynch told the Australian insurance industry it would make a $200 million profit if ACC was privatised. PricewaterhouseCoopers said there would be no major gains from ACC’s privatisation. To illustrate the opening point, let’s assume that there are gains of $50 million. If we privatise ACC, the insurance industry makes $200 million, so everybody else makes a loss of $150 million in higher levies, lower benefits and poorer coverage. Yet the insurance industry has an enormous incentive to promote ACC privatisation, waxing lyrically on the benefits even though the rest of the community would be worse off.
But its not just ACC. The same applies to the far-right policies implemented by Roger Douglas and Ruth Richardson, and which are still popular in the National Party:
This is almost exactly what happened under Rogernomics. (I include here the extension of the policies under the following National Government.) Although the macroeconomic policies badly contracted the economy (by about 15% relative to the rest of the world), the tax cuts to those at the top of the income distribution offset the negligible growth, so their real incomes grew. Those below suffered twice: from the poorer economic performance (including higher unemployment) and from having to pay higher taxes or take benefit and public expenditure cuts to pay for tax breaks for the rich.
As successive reports have shown, the wealthy did very well out of Rogernomics, with the incomes of the top quintile increasing by 20.7% between 1984 and 1998 (and that of the top 10% and top 5% increasing even more). But their gains came at the expense of the rest of us - the incomes of the bottom 60% fell in real terms. In short, the rich got richer, and the poor got screwed. Since Labour took office, they have shifted the income distribution to favour those on the bottom who need it most. As a result, the rich haven't done as well - which is why they're clamouring for a return to the "good old days" when they got everything and everyone else got nothing.

(In fact the shift has been even more dramatic since 2004, as shown in this graph, which shows very clearly why the rich and middle classes are grumpy: because everyone else has done better than them).