Austerity will increase inequality

Written By: - Date published: 10:12 am, May 18th, 2012 - 42 comments
Categories: equality, uk politics - Tags: , , ,

A good article in the Guardian yesterday – by Kate Pickett and Richard Wilkinson, authors of The Spirit Level.

They argue that despite the UK government saying that tackling social mobility as its guiding purpose, the fact that “tackling the financial deficit is the coalition’s most immediate task” is undermining that supposed goal.

Social mobility shows a strong tendency to be higher in societies with smaller income differences between rich and poor.

[…] Observations from sociology and psychology help explain how inequality of income increases inequalities of opportunity. Downward prejudices (or, more simply, snobbery and discrimination) flourish in hierarchical societies. Material differences increase social distances. The elites have the “right” schools and ways of speaking, cultural markers of status. The more hierarchical a society, the more obvious differences in status, and the more likely these are to attract downward prejudice and stigma. Lacking these cultural markers of status increases the obstacles to social mobility. Young people from less well-off backgrounds risk losing out on opportunities for better higher education and jobs.

In addition, experiments show how recognition of social differences diminishes performance among those who are made to feel at a social disadvantage. […]

The Right speak of aiming for equality of opportunity to justify the wide inequality of outcome.  This gives the lie to that aim: inequality of income causes an inequality of opportunity.

Obama sees it “Gaping inequality gives lie to the promise at the very heart of America:” the American Dream, where everyone can make it if the try, is ever more false.

But back to Pickett and Wilkinson:

This is not simply a matter of justice or fairness for individuals. The country as a whole would benefit from increasing social mobility. When people are excluded from opportunities because of their background, their talent is wasted. Because so many politicians, judges, CEOs and senior people in business and the civil service have similar backgrounds, our institutions are more at risk of being out of touch with the majority, geared primarily to the needs and interests of people at the top of the income distribution.

Sound familiar?

[T]he austerity measures now being implemented mean that in the coming years the social ladder will be steeper and the rungs further apart. It is hard to see how the government’s “immediate task” will do anything other than undermine its “guiding purpose” in the absence of bold initiatives to tackle social inequality not only at the bottom, but also at the top.

Austerity is reducing the opportunities for social mobility, for reducing income inequality, for a fair society.  The increased class sizes, the removal of Adult and Community Education, the removal of Training Allowances, the removal of State Houses from more expensive suburbs and new subdivisions, and many more things National are doing in the name of “austerity” are undermining our society.

It’s a well-argued opinion piece against a different Tory government’s policies, but the arguments hold here too.  Worth a read.

42 comments on “Austerity will increase inequality”

  1. Carol 1

    Austerity can do nothing BUT increase inequality. It’s a TINA that’s designed to mask the further accumulation of wealth by those who already have wealth and power, by syphoning off money and resources from those already struggling, at a moment of systemic crisis.

    This response to the TINA, austerity wealth grab puts it well:

    http://www.independent.co.uk/opinion/commentators/mark-steel/mark-steel-starve-the-greeks-and-theyll-feel-better-7754276.html

    Up until now the argument has been that there’s no alternative. We have to slash public spending and wages because there’s so much debt that otherwise there’ll be chaos, absolute chaos. The joy of this method is it saves having to make a case for your actions, so it ought to be used more often. Journalists accused of phone hacking could say, “I had no choice but to listen to a dead soldier’s voicemail because otherwise there’d be chaos, absolute chaos. Just look at Greece, they didn’t hack any phones and look at the mess they’re in, there was no alternative.”
    […]
    Maybe muggers will adopt this approach, and instead of pushing pensioners against a wall they’ll tell them, “Give me your wallet, otherwise the whole of Europe will fall apart and it will be your fault.” But now the situation is changing, because across Europe it’s being suggested the poor shouldn’t be the ones made to pay. In Britain for example it’s been revealed the national debt is equivalent to the amount the richest 1,000 people have become richer by in the past four years. Presumably they can’t be made to give it back, as they’d scream, “Please don’t make us go back to the pitiful way we had to live in 2008, that’s too cruel”. But there may be a way round that, by politely pointing out, “Sorry Mr Ecclestone and Mr Abramovich, but there’s no alternative.”

  2. True Freedom is Self-Governance 2

    With no clear evidence to suggest austerity has ever been a successful strategy (for the greater good anyway), I can think of only two possibilities; a) The government are blindly following an idealogy that has been tried and failed many times before and are hoping for a different outcome (this is commonly referred to as the very definition of stupidity), or b) The government is well aware of the true consequences of austerity and either dont care or wish to actively encourage inequality. My guess is on the latter, needy people are so much easier to control.

  3. The Baron 3

    … and the flipside, irresponsible spending increases, essentially amount to intergenerational theft as left wing Governments seek to continue buying off large parts of the electorate. Please tell us; just how much additional debt is enough to avoid these horrible outcomes, Ben?

    See, both sides can play the hyperbole game.

    • Bunji 3.1

      As KTH points out below, there are 2 sides to a balance sheet – one can increase revenue as well. One doesn’t have to introduce tax cuts for the rich (and nationalise their debt) when one can’t balance the books already…

      Beyond that we’re in a recessionary cycle at the moment, and fortunately the previous Labour Government with 9 long years of surplus had got us into net credit in the good times, so we could afford to pay for the bad. Now admittedly National have racked debt up incredibly fast – amazing without any effective stimulus to get us out of our hole – but we’ve still got a very sustainable debt currently.

      If you focus on reducing the vast gaps between rich and poor (firstly by making sure there are jobs for people to go to) you’ll find there’s a lot more people able to pay their way, a lot less talent wasted and the books balance a lot easier in the long term. But that’s not on the government’s short-sighted penny-pinching agenda.

      • simon 3.1.1

        Labour increased government spending as a proportion of GDP during its 9 years. If had maintained at same level of GDP as Nats had then accumulated government debt would have been reduced to somewhere around 10%-15% (and give a net govt stockpile) AND Nats current round of cutbacks would be nowehere near as savage as level of government expenditure would be close to Nat’s ideological norm.

        Cullen seemed to hold the views that (a) any problem could be solved by throwing money at it, with no need for any performance standard (b) the government knew better how to spend taxpayers’ money than the taxpayer. Which reminds me: you may choose tonight’s meal from the following list of approved fish.

        • Half Crown Millionare 3.1.1.1

          What the fuck are you on about

        • Draco T Bastard 3.1.1.2

          Labour increased government spending as a proportion of GDP during its 9 years.

          Prove it. And by that I mean show us the %age of GDP spent by government since 1990.

          Also, this: Basically, if the government didn’t spend the economy would collapse – which is what’s happening ATM. It’s not private businesses that drive the economy but government. All private businesses do is take money out of the governments hand through the dead weight loss of profit (that’s why the government is now having to pay to upgrade the telecommunications network which should have bee upgraded with Telecom’s profit over the last 20 years).

  4. tsmithfield 4

    Austerity has to happen sooner or later.

    Austerity is simply living within a budget and generating a surplus to repay debt. The longer debts keep getting racked up, the deeper the austerity will be, as Greece has discovered. Therefore, it stands to reason that we are better to start some mild austerity now rather than much deeper austerity later.

    • The Baron 4.1

      Nonono TS, you’re forgetting that Labour planted that magical money tree a couple of months before the last election! We never need live within our means again – spend spend spend, because otherwise the entire world breaks down or something.

    • Kotahi Tane Huna 4.2

      You’ve really swallowed the kool-aid haven’t you?

      Minor detail: the deficit is caused when revenue < expenditure. There are two sides of that equation and you're only focussing on the expenditure. Which has increased under National.

      So not only are you ignoring revenue, you're supporting a party that does the opposite of your mumbo-pocus.

      Cognitive dissonance much?

    • OneTrack 4.3

      No you just have to fire up the printing press and print as much money as you need. Look it’s working for Robert.

    • McFlock 4.4

      “Austerity” is quitting your job and then not feeding the kids because you’re broke.
      “Living within a budget” includes keeping the job, or even increasing your income, before considering spending cuts.

      • tsmithfield 4.4.1

        ““Austerity” is quitting your job and then not feeding the kids because you’re broke.”

        Nah, mate. That’s stupidity.

        Austerity has such a nasty connotation because at the moment it involves extremely indebted nations having to take medicine they should have taken decades ago. So the pain is much higher, and the disease has gotten so bad that the medicine might kill the patient.

        At the moment, in relative terms, we have a case of the sniffles that we can resolve relatively painlessly through some gentle medication.

    • Good grief. Back to political kindergarten.

      First question: Why do you think we have a ‘welfare system’ (broadly conceived)?

      Correct Answer: In order to pre-empt the numerous uprisings, riots, widespread civil disobedience and, potentially, revolt that characterised history in capitalist and other societies prior to its arrival. The main enemy has always been the threat that people will resort to that greatest of all heresies – governing themselves and so realising that they do not need someone else to govern them.

      Second question: Why else do we have large government expenditure?

      Correct Answer: to provide wide-ranging subsidies to corporate and industrial interests – e.g., mass education was established for this purpose; modern universities primarily arose – and were taxpayer funded – to serve this purpose (by providing not only highly trained specialists but also the taxpayer funding of research and development in new and emerging areas of technology); health systems – and budgets – were expanded to ‘grow’ pharmaceutical companies and associated industries; roading, other transport, energy and water infrastructures were primarily turbo-charged as a direct subsidy to commerce.

      Here in New Zealand this pattern continues with ‘roads of national significance’, ‘ultra-fast broadband’ and the like.

      Government expenditure has never been instituted to help the masses directly – when that happened it was always as a means to its real end: Providing protective fortifications – of various kinds – for those with wealth and property.

      ‘Austerity’ can be understood most simply as the current risk calculation by those with wealth and property as to the degree to which current expenditure on state provision (that actually helps ‘the masses’ most directly and subsidises the elite most indirectly) can be reduced without leading to the aforementioned uprisings, riots, etc.. (In Greece and elsewhere, the calculation is woefully awry and – guess what – the aforementioned riots, etc. are happening, as would be predicted.)

      That’s what is meant when people talk about “living within our means”: it’s code for how hard the lemon (aka ‘the masses’) can be squeezed without the pips and acid spurting out and taking out the eyes of those with the most to lose (who are not to be confused with the most vulnerable, of course).

    • mike e 4.6

      the silly monaterist!Austerity is a joke less economic activity means a bigger amount of money to find for taxes a debt repayment even David Cameron has acknowledged that today with the Greek problem.

  5. just saying 5

    Great article Ben.
    I’m hoping you push this agenda hard in the Labour Party. Because, as you know, Labour is also advocating austerity.

    • Te Reo Putake 5.1

      Crikey! I must have missed the email. Can you point out where Labour has advocated austerity, just saying?

      • just saying 5.1.1

        Am in a bit of a rush and this requires a long answer. I will get back to it. In the meantime can you point to all the Labour policies that are the antithesis of austerity?

        Ever so slightly less austerity is still austerity.

      • just saying 5.1.2

        So, not that interested in the question after all TRP.
        In that case I won’t waste my energy responding.

  6. Kevin 6

    Without austerity and economic discipline the risk to lower income groups is greatly enhanced, there would be fewer resources available and everyone would suffer.

    • Carol 6.1

      Depends on who is being austere and how. If the wealthy and powerful corner all the resources, particular when the supply is limited, the poor will never benefit.

      Now austerity by the increasingly wealthy would be more be beneficial to all.

      PS: see Olwyn below – what help is it to the poor if they starve as a result of austerity, meanwhile, the rich keep getting richer?

  7. Olwyn 7

    There is a context to the debate between austerity and “borrow and spend” as they are presently discussed, and that context is TINA, as Carol has pointed out, and linked to an excellent article in the Independent. To further quote from the article:

    “…it turns out Greece includes some of the poorest areas of Europe, and these are the areas that will be affected the most by the proposed agreement, with reports that people could actually starve. So if they caused the crisis by not starving, what were they eating? Are there regions of Crete where villagers have been living off emerald flan? Are they saying, “We thought the state-funded puddings made from grated Van Gogh paintings would go on forever.” So now they must be told, “If you don’t starve there’ll be chaos, so the quicker you start starving the better.”

    It would be possible, if not for TINA, to have a bottom line as to what is needed for a modestly decent life, and treat it as sacrosanct, so that all austerity measures had to begin above that level, and all investment required to contribute to maintaining or, within reason, raising that level. We could also tax in relation to the amount of decent employment generated, so that if you exist only to get wealthy yourself at the expense of others you pay more, and face limits as to the extent to which you may prosper at the expense of others; that is, you could not get rich in ways that would render others homeless, jobless or hopelessly underpaid.

    In fact it seems to be true that all this debt is about enslaving people and countries to financial institutions, and wealth accumulation having become far more reliable than manufacture as a source of revenue. I would guess that there is far more debt in the world than a theoretical super-rich alien would be willing to pay for the world as a package deal.

  8. DH 8

    It’s annoying that people are turning this into a ‘spend more or spend less’ issue. It’s never about how much the govt spends, it’s all about the quality of the spending. The way some on the left are talking you’d think that the govt just needs to borrow more, spend heaps, and all will be well with the world. It’s shallow thinking that detracts from the real problems.

    It’s not that this govt is being austere, it’s that they’re spending the money badly which results in cuts having to be made on other fronts. The highways of notional insignificance is a prime example. It’s plain bad spending. The money should be spent on something else like a big housing boost that will help train more tradesmen for ChCh, ease the housing problem & take the pressure off rising rents that are killing the poor.

    IMO The mantra of the left should not be ‘spend more’, it should be ‘spend wisely’.

    • Vicky32 8.1

      The mantra of the left should not be ‘spend more’, it should be ‘spend wisely’.

      Seriously, what makes you think it’s ‘spend more’? That’s just a right wing belief…

      • Carol 8.1.1

        Indeed, it sounds a lot like the “borrow and spend” misinformation that Key & co keep repeating that Labour & Greens plan.

        Whereas, NAct has been practicing, and planning to, borrow, cut and hope while siphoning off finds to the private sector, especially the already wealthy and/or powerful e.g. by adding in ticket-clipping, price-raising, middlemen and competition for prisons, electricity, water etc, etc…

        • DH 8.1.1.1

          Carol & Vicky. The original post says that cutting spending has a negative social outcome. Now unless they approve of that negative outcome they must therefore be implicitly demanding; “don’t cut spending”. That equates to spending more. You can argue the rights & wrongs of it, you can bitch about it, it is still spending more. Unless of course they can show some equivalent savings elsewhere in the budget to pay for it. Which they haven’t.

          As for links, you’d need to follow the wider debate on it Carol. It’s not a hard picture to build up. The Herald for example has had Hazeldine & Gould pushing for stimulus spending instead of austerity. They’re both old guard left, both call for more govt borrowing and more spending. We’re not borrowing enough according to them, we’re only up to $30odd billion in hock.

          • DH 8.1.1.1.1

            And by the way folks; the opposite of austerity is spending… anyone complaining about austerity must by default be clamouring for more spending. I’d assumed everyone must realise that. Perhaps not.

            • Carol 8.1.1.1.1.1

              Please, Mr DH, don’t presume to tell me what debates I have not been following. I certainly have read some of Bran Gould’s recent writings. Here,for instance, he outlines selective spending, balanced with policies to raise the funds in which to do this.

              http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10788648

              Here he argues that the so-called “market solutions”, PPPs etc., result in
              more government spending in the long run, while also siphoning off funds to private entities:

              http://www.bryangould.net/id210.html

              But a moment’s thought would suggest that this is unlikely to be the case. The cost of financing a project will be the same in principle, wherever the funding comes from. While the initial capital cost, under a PPP, is borne by the private investor, that investor will want to cover the cost of capital and in addition earn a return on capital (or profit) over the lifetime of the scheme –typically, 25 or 30 years. Not surprisingly, in countries like the UK where such schemes were pioneered two or three decades ago, recent impartial research has shown that they often cost the taxpayer more over the whole period than if they were built and funded by more conventional methods.

              The truth is that the main function of PPPs is to provide, through infrastructure projects, secure and profitable investment opportunities for the government’s friends in the private sector, while ensuring that the greater cost of funding the projects in this way is spread forward over decades to be borne by future taxpayers.

              And unlike your characterisations of the left being into reckless, unfocused spending, Gould argues for spending being balanced with debt and the raising of funds.

              http://www.bryangould.net/id169.html

              Governments can choose to focus on cutting spending, or they can try to increase revenue. These further economic shocks show that, in focusing exclusively on cutting spending, they have made the wrong choice.

              The problem is that the level of debt is a function of the level of economic activity; the higher the level of economic activity, the more buoyant the government’s tax revenue. A government that has trouble in balancing its books in a recession, and that seeks to deal with that issue exclusively by cutting its spending, necessarily reduces the level of economic activity and – by depressing its tax revenue – makes the debt problem more difficult to resolve.

              So, DH, you may have been following these debates, but you are not representing them accurately.

              • DH

                Sure I am. Gould is saying the govt needs to spend more. That’s what stimulus is. We’re running a deficit so we don’t have the money to spend, we’d need to borrow it. Now while he’s confident all his grand schemes would work there’s no guarantees, they’re unproven, and we could end up mired in even more debt with a reducing tax take and no way out of a very deep hole.

                Before the Nats got in and blew our budget out of the water stimulus spending was a viable option. We had little debt, we could afford to borrow & spend wisely in order to stimulate the economy where it was needed. Now we’re facing a far more difficult scenario. The interest bill on this govts borrowing alone is costing nearly a $billion more per year, we can’t afford the grandiose schemes that carry a high risk of failure (such as printing money). Blow it again and we’ll be saying hello third world.

                • Carol

                  DH, you’re now changing your argument. First you said that the left shouldn’t be spending more, but spending wisely.

                  It’s pointed out that the left does have plans for spending wisely, so you drop thatpart of the argument, now you just focus on the “spending more” part of the argument.
                  If you had followed Cunliffe’s plan during the last election, you would have seen that, in the long term, Labour’s plan was to run a similar deficit to National in the medium term, and then to have less debt in the long run.

                  Gould also talks about ways to raise the necessary revenue, including ways other than borrowing.:

                  http://www.bryangould.net/id169.html

                  Governments can choose to focus on cutting spending, or they can try to increase revenue. These further economic shocks show that, in focusing exclusively on cutting spending, they have made the wrong choice.

                  You only seem to be focusing on as much of left wing arguments as you can get away with in order to make your point.

                  Not tried? Actually, the left take a lot of their guidance for dealing with a recession, from what was done during the 1930s recession.

                • Carol

                  And as the respected economist, Joseph Stiglitz argues, one of the ways to raise funds when there is a lot of debt, is to raise taxes.

                  http://www.atimes.com/atimes/Global_Economy/NE10Dj01.html

                  Stiglitz thinks they are right to be. Time and again, he comes back to one basic point: Austerity is not the answer. “No large economy has ever recovered through austerity. Growth won’t come just from austerity, nor just from structural reforms,” he says.
                  […]
                  In most of Europe it’s a different picture, however, because of borrowing constraints. What then? Raise taxes, says Stiglitz. “The view that you should not increase taxes is just wrong.” He says governments should implement the tax hike and then spend the proceeds on high-return investments. “Then the net effect is to stimulate the economy and create employment.”

                  NZ, compared with other OEDC countries has quite low taxes. And a lot of the reason our current government has increased its debt, is because it lowered taxes for higher income people…. just at the time when it couldn’t afford to. And as the Independent article I linked above said, the wealthy in the UK increased their wealth by the same amount as the debt increased – so, the wealthy are much better positioned to face some austerity, than the rest of the population.

                  But of course, “austerity” currently is being enforced for those least able to deal with it. The “age of austerity” means jam today for the wealthy, austerity for the rest, with a promise of jam tomorrow for the many … but, evidence of neoliberalism shows that once the wealth has been moved upwards, it never does “trickle down”.

                  Also the NZ government has spent money bailing out the wealthy & in return for law changes to suit big corporates.

                  If your asking for evidence the left approach will work? Well, as Stiglitz argued, we have plenty of evidence that austerity doesn’t work. The early 20th century new deal and welfare state policies are a guide to an alternate way to respond to a recession.

                • Carol

                  And for more on what some lefties say, take a look around at some of the discussions on the Standard…. here for instance, where Descendant of Smith argues for increasing taxes:

                  Open mike 18/05/2012

                  Or at some of the views on threads like this:

                  Poor people NIMBY

                  • DH

                    “DH, you’re now changing your argument. First you said that the left shouldn’t be spending more, but spending wisely.”

                    I’m just trying to stay on topic & avoid thread drift Carol, I’d be happy to debate economics with you but that wasn’t the point of discussion. When you take an everyday word like austerity & use it as a catchcry you send a message whether intentional or not. If I criticise being austere it must follow I advocate the opposite, which is spending. I might not mean that, but it is the message.

                    As to whether austerity is good or bad, it’s subjective isn’t it. If this Govt instead placed a total ban on the use of outside consultants, or forced down the bloated salaries of civil service mandarins, or shut down the quangos hiring their mates on cosy sinecures, all in the name of austerity, well then austerity wouldn’t be so bad after all would it.

                    I guess it’s more the blanket use of the term, and the way it’s turned into a bit of a political rallying cry, that I dislike because IMO it sends the wrong message. It becomes an all-enveloping ideological stand whereby everything austere must be bad. That leads further to the creation of a left/right schism in people’s minds where the right are austere & the left must therefore be spenders.

                    And just to set one thing straight. When I refer to the left in this kind of context I’m talking about those who purport to represent us, not the ‘left’, so I’d ask that people don’t presume I’m attacking them. We all want similar things here, we just have differing ideas on how it might be achieved.

    • Half Crown Millionare 8.2

      IMO The mantra of the left should not be ‘spend more’, it should be ‘spend wisely’.

      They do

    • Draco T Bastard 8.3

      The way some on the left are talking you’d think that the govt just needs to borrow more, spend heaps, and all will be well with the world.

      Governments should never borrow money, they should just print it and then adjust taxes to prevent excess money in circulation and excess accumulation.

      It’s shallow thinking that detracts from the real problems.

      The real problem is capitalism and that’s not being addressed at all.

      IMO The mantra of the left should not be ‘spend more’, it should be ‘spend wisely’.

      That’s what the left tends to do, even Labour (which is a centre-right party) does that. It’s the radical right (National, Act) that spends badly.

  9. Carol 9

    The way some on the left are talking you’d think that the govt just needs to borrow more, spend heaps, and all will be well with the world. It’s shallow thinking that detracts from the real problems.

    Where do lefties say this? Evidence, please?

    Most of what I read from the left is about how the government is borrowing heaps, cutting revenue by bad taxed policies, and cutting much needed public sector jobs and services to make up for it. – as was discussed on this thread for instance:

    The only growth industry

    • DH 9.1

      That’s what the whole austerity argument is about Carol. The people who dreamt up the ‘austerity’ jargon are the same ones who push for stimulus spending. They don’t say ” we could spend less here and more there..”. They just want more spending without offering any ideas on where the money is going to come from.

      • Carol 9.1.1

        Links, please?

      • Carol 9.1.2

        The term “austerity” in it’s current political context is partly attributed to David Cameron – that particular “jargon” came from the right not the left.

        http://en.wikipedia.org/wiki/Age_of_austerity

        The term “Age of Austerity” was popularised by British Conservative leader David Cameron in his keynote speech to the Conservative party forum in Cheltenham on 26 April 2009, when he committed to put an end to years of excessive government spending.

        There are a range of policies that have been advocated by the left, including targeted spending on such things as spending on public transport, education and training etc, etc. There have been different proposals from different groups, as anti-austerity campaigns range across diverse demographics and political preferences.

        http://en.wikipedia.org/wiki/Anti-austerity_protests#Examples

        This is because they are of the sizes they are; that they cut across age groups (e.g., both students and older workers) and other demographics; that they can incorporate many different types of actions in many different segments of a given country’s economy including education funding, infrastructure funding, manufacturing, aviation, social welfare, and many many others; and that the phenomenon of austerity, when explained by itself, is inadequate to properly encompass the phenomenon of widespread opposition to it, and that opposition’s nuances and fluctuations.

  10. Love the word “Austerity”.
    Can see it being the buzzword for this year at least.
    Looked it up – “severe in self discipline”.

  11. Murray Olsen 11

    Key’s tax gift to the rich could be rolled back without borowing a cent. NAct’s mantra seems to be borrow and spend on our rich mates. Their cutting of public services usually end up with more money going to consultants, so that’s borrow and give to their rich mates again. Shearer has plenty of economic ammo – whos’s advising him not to use it?

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