I have been having a look at the IMF magazine of September 2011: which was devoted to questions of equality,and is referred to above. It is very instructive indeed. It is not to be expected that people will admit that what they thought before was wrong just because they have now changed their minds. I find that odd: but it seems to be general rule in politics and economics, at least.
Let me start with a piece called "More or Less" by someone called Branko Milanovic. As an example of muddled thinking caused by the need to pretend that one's views have always been reasonabe it is quite good.
The subheading of the piece is this
QUOTE
Income inequality has risen over the past quarter-century instead of falling as expected
This is the first place you are stopped in your tracks. Expected by whom? The neoliberal economists have been quite explicit in saying that increased inequality is either a good thing, or at the very least irrelevant: and there is nothing at all in their theory which leads them to try achieve income equality. Since politicians in most countries have been persuaded to adopt that theory, there is no justification whatsoever for that "as expected". So what are to make of it? Are we to think that the policies and conditions that the IMF have been pushing for 30 years were predicated on some idea they would increase income equality, and they just made a mistake? For 30 years? All over the world? Did they just mishear the economists? I cannot believe that sentence is honest: I think it is a weaselly attempt to imply they had no idea they would increase inequality. Oops!
The next paragraph says that inequality within countries is increasing: but recently that between countries is decreasing. This is due to levelling down, as is implicit in his expositon, though not properly spelled out. More gloss
There follows an expanation of how inequaity is measured, so that is handy.
The lie in the subheading is made absolutely clear in the next bit:
QUOTE
Historically, the reverse position—that inequality is good for growth—held sway among economists.
As noted in an earlier post the IMF has shifted from a focus on employment to a focus on growth, and the only reason for that is the adoption of neoliberal economic theory. That "as expected" is clearly exposed as a big fat lie, if you had any doubt of it before.
Then comes the explanation for why they were right before when they sought to increase inequality: and right now when they have reversed their position. It is quite amusing. This is what he says
QUOTE
The main reason for this shift is the increasing importance of human capital in development. When physical capital mattered most, savings and investments were key. Then it was important to have a large contingent of rich people who could save a greater proportion of their income than the poor and invest it in physical capital.
But now that human capital is scarcer than machines, widespread education has become the secret to growth. And broadly accessible education is difficult to achieve unless a society has a relatively even income distribution. Moreover, widespread education not only demands relatively even income distribution but, in a virtuous circle, reproduces it as it reduces income gaps between skilled and unskilled labor.
Poppycock!. There is no empirical evidence for the importance of "human capital" in promoting economic growth in the way he implies (see other threads in this section). But even if it were so there is hardly a shortage of education in western europe. Yet when the IMF makes prescriptions for Western European countries they always include measures which will inevitably harm education: for education is provided by the state through public spending and public spending is always to be slashed. It always includes large scale privatisation and that includes schools and universities (or at the very least they are not ring fenced from such measures): but private education is nowhere universal education.
Nor is there any reason at all to suppose that increased inequality is a good in countries where the need is for physical capital. If folk are better off they can pay tax. That tax can be used to invest in the way he describes. If you happen to believe that government led investment is necessarily incompetent you can allow people enough income so that most save a little, and then pool those resources and promote investment that way. There is nothing in either route to suggest that increased inequality is either necessary or desirable. Rich people don't pay tax. The asumption that they invest is just that: an assumption. They do, to some extent, invest their wealth: but more of it sticks to their fingers, and the very rich achieve their position as rentiers, not as entrepreneurs, mostly. If what you want is investment in physical capital there is no empirical reason to suppose that will be better achieved by making some people very rich, and more people so poor they cannot contribute. Self serving rubbish!
He then notes that the rise in inequality (which, unsurprisingly, he dates from the early 1980's just when the neoliberal theories superseded Keynesian models in mainstream economics and in government policies in many countries) is at odds with both of the theories which address the question in economic theory. Economists were surprised: it is claimed. Orly? When they are agreed to have believed that outcome to be desirable and set out to achieve it? I don't think so. What is happening here is a conflation between the abstract models embraced in academia and the actual influence of policies predicated on different models applied to the real world. He knows this fine and explains it quite well in a later section when he goes on to outline various explanations for the observed phenomena, and is reasonably even handed in that expositon, I think.
