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Tag Archives: intergenerational report

Conservative ideology and the Intergenerational Report: why Hockey had to remove all reference to inequality

Why did Joe Hockey and Tony Abbott remove all reference to inequality and income and wealth distribution in the Intergenerational Report? Warwick Smith investigates.

A search of the government’s recently released Intergenerational Report for the word “inequality” yields zero results. The same is true for “income distribution” and “wealth distribution”. This is not surprising because conservatives are basically forced by their other beliefs to play down the importance of inequality.

As many others have pointed out, the Intergenerational Report is an inherently political document and is much more informative about the current government than it is about the actual future of the country. The very short treatment of climate change in the report is a case in point. Another important element that was present in the 2010 report that is entirely absent from the 2015 version is any mention of wealth and income distribution. Instead, the 2015 report relies entirely on averages for reporting income and wealth.

Using the average (or mean) value for income and wealth can conceal very important information. Distributions can be measured and modelled just as averages can be measured and modelled. Not reporting on or modelling distributions is therefore a deliberate choice.

If you have 100 people in your economy and 99 are in abject poverty while one is a millionaire, average wealth is about $10,000. If that millionaire doubles their wealthy to $2 million the average wealth also doubles to $20,000. Based purely on averages it looks like things are going really well despite 99 percent of the population living in poverty and nothing improving for them. This is not an entirely unrealistic scenario. In the United States, since the 2008 financial crisis, a staggering 93% of income growth has gone to the top 1% of income earners. The average income has grown but the bottom 99% of income earners have mostly seen wages stagnate or fall. If we only heard about average incomes during that period we could be fooled into thinking US incomes are recovering from the financial crisis.

Equality of outcome is required for equality of opportunity

The negative consequences of extreme inequality have been very well documented by numerous studies in a variety of fields. Nations with high levels of inequality have poorer outcomes across a huge range of health and wellbeing measures, from teenage pregnancies to drug and alcohol problems.

warwick

Income inequality has a huge impact on health and well-being even among wealthy western nations. Graph from ‘The Spirit Level’.

Conservatives, by definition, tend to defend the status quo with respect to institutional structures. This means that if current structures are resulting in increased inequality then they are driven to dismiss or play down the importance of inequality. In fact, many conservatives consider inequality to be essential in order to provide incentives for hard work. However, there is only value in an incentive to climb the ladder if climbing the ladder is possible.

The reality is that the more unequal a country is, the lower equality of opportunity they tend to have. Equality of opportunity relies, to some extent, on a degree of equality of outcome. Parents in poverty cannot provide their children with the same opportunities that wealthy parents can no matter how intelligent, well intentioned or well informed they are. Similarly, children in poor communities will likely attend schools with poorer student outcomes and lower teaching standards than those in wealthy neighbourhoods.

When it comes to inequality, conservatives are trapped between conflicting articles of faith; small government and meritocracy. The data imply you cannot have both. Meritocracy requires considerable government intervention, particularly in education, health and welfare.

The policy leaders in this area are the Nordic nations of northern Europe and we would do well to pay more attention to their successes. Not only do these nations have relatively low levels of inequality, they have high income mobility and score very well on measures of life satisfaction and wellbeing. They achieve this through a complex web of legislation but it is underpinned by well-funded universal healthcare, education and welfare systems. The effect of these is to provide more than just a safety net but rather a baseline standard of living such that everyone can live a dignified life. This seems to me the very essence of a civilised society and is certainly within reach of all wealthy western nations.

We can see why Hockey and Abbott chose to remove references to inequality from their Intergenerational Report. Honest discussion of inequality reveals the incoherence of their broader social vision. When reduced to outcomes, the conservative political agenda of defending current structures and institutions manifests as simply protecting the interests of wealth and power at the expense of the rest. That’s all it ever has been – the rest is smoke and mirrors.

Warwick Smith is a research economist and social commentator. He blogs at reconstructingeconomics.com and tweets @RecoEco.

Liberals’ Ludicrous Logic

The Intergenerational Report was released today.

It was late. Which, I understand, is illegal. But this is a government that seems to believe that, well, it’s the government so therefore nothing they do is illegal, because, as governments make the laws then there’s no need for them to uphold them because they can just change them if it’s inconvenient.

Or ignore them.

But, I’m not going to write about the failure of the current mob to understand such things as the separation of powers. I’m going to write about their failure to understand two other rather important things.

First, projecting forty days into the future is fraught with difficulty because all predictions make certain assumptions, so predicting forty years into the future is only useful in terms of asking ourselves if it’s where we want to end up and if not, what do we need to do to make sure that it doesn’t happen that way.

Second, when you’re in politics you need to pull the right face at the right time. And I’d like to suggest that when the message you’re trying to sell is that we’re all ruined. You should not have such happy faces so soon after announcing the bad news.

But then, Joe’s never quite understood that last point. Neither has Tony for that matter. Tony always looks very angry, or extremely happy that he’s now PM. Every now and then, he can pose for a photo opportunity and look concerned, but then he’ll break into a beaming grin which suggests that he thinks he’s done very, very well and he can gloat because he’s PM, after all and look at all the losers who never made it that far.

Which brings us to Hockey.

He looked far too pleased to tell us that Labor would have increased the debt by so much. He almost seemed to be enjoying it. Look where Labor would have taken you, he seemed to be saying, so isn’t it great that we’re the government?

Except that brings me back to my first point. It’s ridiculous on any level to say this is where the debt would have gone under Labor. I’m not even going to suggest that this little graph seems to assume that Labor would have been in power for then next 40 years…

Although, given Abbott and Hockey’s performance, I wouldn’t like to entirely rule it out.

pretty graph pg

I could also point out that – according to the Liberals – Labor are the party of high taxes. They’d tax far, far more than the Liberals, which would suggest to most folks that they’d have more revenue and therefore be better able to pay for their spending. But then I’d get into some convoluted argument about how high taxes – such as the mining tax or the carbon tax or, indeed, asking highly profitable companies like Apple to pay any tax above two percent would mean that they’d close all their stores and only sell their products to people in third world countries – destroy the economy and thanks to the abolition of the carbon tax our economy is STRONG again.

But I’m done with all that.

I’m not playing the game of using logic and reason because it seems to lose out to the Andrew Bolts of this world, so I’m going to accept that the debt is enormously high and Labor would have just let it grow like that. Let’s just say that’s a given. After all they introduce things like Medicare, which forces people to have access to a doctor when it’s be much better to have a “price signal” so a person could decide whether they’d be healthier by visiting a GP or feeding themselves. That’s choice; that’s the Liberal Way. Let’s just accept that Labor are incompetent with money and it’s all their fault that the debt is so unacceptably high. Yes, yes, Joe, so let’s just say that they should never be given the opportunity to govern ever again like many of your front bench seem to argue.

Take away that red bit at the top of the graph. Just imagine that only the blue bit is visible, because after all this is not really a comparative thing. I mean, you wouldn’t say that I convinced you to not to eat at my competitor’s restaurant because he gave you food poisoning, whereas, I just let my dog defecate in the restaurant while you’re eating, and I always clean it up withing five minutes. (Actually, maybe you would!)

Anyway, focus on where the blue bit is headed:

LOOK AT HOW BADLY YOU GUYS ARE DOING. 

LOOK AT HOW MUCH THAT DEBT IS GROWING. 

YOU NEED TO DO SOMETHING. 

I mean, you can’t say that just because you’re not as bad as Labor then it’s all ok. LOOK AT IT…

It’s grown enormously in the forty years since you made this a one party country by seizing the Opposition’s metadata and jailing them because they weren’t on Team Australia.

No, don’t just blame the Senate. Call a Double Dissolution now, before it’s too late. Because if you don’t, we can all see the way things are heading.

Turnbull will be PM before the end of April. And who wants that?

Ok, ok, but don’t say I didn’t warn you!

 

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