The Chancellor, George Osborne, used his budget speech to again spell out the need for economic rebalancing. But nowhere did he address one of the most serious sources of imbalance, the uneven way in which the economic pie is shared.
Ed Miliband’s Bedford speech last week deserves to be seen as a key turning point in social democratic thinking. New Labour’s economic strategy was built around the idea that growth and economic success depended on allowing markets and the rich to flourish.
The coalition government’s decision to increase most benefits (from Jobseeker’s Allowance to Tax Credits) by less than inflation marks a new low in the post-war history of welfare in the UK. First, it is unprecedented since the war.
Over the last year, inequality has been racing up the political agenda. ‘Inequality, as President Obama has put it, ‘is the defining issue of our time`. Yet for all the talk, the income gap – apart from dipping slightly in 2009 – has been rising through the crisis.
The word ‘pre-distribution` may not trip easily off the tongue but we are going to hear a lot more of it. To date, Ed Miliband’s call to mould a narrower income gap before the application of taxes and benefits has received something of a mixed reception, even amongst Labour supporters.
Read Part II here.
The key lessons of the 2008 crash are now becoming clear. For the last thirty years, some of the world’s most important economies have been applying a faulty theory on the way the economy works. Demand in most large economies is wage-led not profit-led. That is, a lower wage share leads to lower growth.
Read Part I here.
The driving force behind the widening income gap of the last thirty years has been a shift in the distribution of “factor shares” – the way the output of the economy is divided between wages and profits.
Does inequality trigger economic instability? A few years ago this was a issue that did not register on the political Richter scale. Nor did it attract much attention amongst professional economists. As James Galbraith, the economist son of John Kenneth Galbraith, has put it, those few working in inequality research were in an economics “backwater”.
On Sunday, Eric Pickles, the Communities Secretary, announced – in an interview with the Independent on Sunday – a new tougher approach to what the Government has called England’s ‘120,000 troubled families’.
In the ongoing debate on how to handle the UK’s public sector deficit, one side of the equation – ‘the tax-take’ – has been mostly ignored. Yet, over the last thirty years an increasing number of rich countries have been hitting an apparent limit on their ability to raise revenue through taxation.
Among the most progressive initiatives of the three post-1997 Labour administrations were the introduction of the minimum wage and the strengthening of income support for those on low earnings.
Since the onset of the global crisis, the question of inequality has been rising up the political agenda. During the 2010 election campaign, David Cameron liked nothing more than to chide Labour for their record. One of the Conservative Party’s election posters showed a smiling Gordon Brown with the caption ‘I increased the gap between rich and poor’.