inequality

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The culture war and politics now being injected into UK charities

Published by Anonymous (not verified) on Tue, 26/01/2021 - 6:39pm in

I noticed this tweet this tweet, published yesterday  in response to a letter in The Times, which can be viewed by looking on the link within the tweet (which saves me from suggestion of infringing copyright):

I have followed this issue ever since the Tories appointed a former Tory minister to uphold Tory values with regard to charities as chair of the Charity Commission. I have also followed the row about Prof Corrine Fowler and her team who did excellent work (in my opinion) in documenting the links between slavery, slave owning and National Trust properties.

I deeply resent the suggestion by Baroness Stowell that this work, and others of its type, is culture war. It isn’t. This is history. And anyone who knows anything about history (and I have my own quite niche interests in history and so have some experience in reading developments in it over quite a number of decades) knows that history is not just about facts. It is about our best current understanding of available data (which always evolves) through the lens that society wishes to use to view it at points in time.

So the argument here is not about party politics (and party politics should  always and appropriately kept out if charitable activity). It is instead about how facts develop, and how the view of society develops.

So, for example, now we know Black Lives Matter. It could, of course, be said that we always should have done, but because of developing understanding and events we have finally reached a point where we (I refer to those previously not doing so) seek to view the world through that lens, and ask questions as to why inequality still so very obviously exists, rather than pay lip service to equality in the present without seeking sufficient evidence as to its past cause.

What in any way makes that a culture war? The answer, of course, is nothing at all.

Nor is it non-historical. It is about determining data, as for example the team looking at the National Trust did, and using that to explain events that had not previously been revealed. This makes the approach academic, appropriate, informed and deeply relevant by providing insight into the nature and causes of inequality and its development, as well as perpetuation. Assuming we accept the rather basic maxim for human living that one should love ones neighbour as yourself, which requires that they be treated equally whomsoever they might be, then such work would have to be applauded.

But, apparently it is not. Acceptance of that maxim is apparently party political, which is a little surprising as a suggestion, whilst seeking to explore that causes of current inequality, of various forms, and the nature of the mechanisms of power that maintain it is apparently to pursue a culture war. But, again, it is not. It is about seeking to understand the mechanisms that create disadvantage in our society, and which maintain them through prejudice.

What is true, however, is that there is both party politics and culture war going on here. Both are being pursued by the conservative establishment. The call to respect the opinions  of those who support charities provides the evidence of that. It could not be a clearer message. Honour the wealthy philanthropist it says.

And honour too the Sunday afternoon day tripper to the National Trust, it also says, and their right to enjoy a guilt free, unquestioning, cream tea without mentioning anything so sordid as the role of slavery in building the fabric of not just the tearoom but the very fabric of the society in which it is served.

This honouring is about party politics. It is about the politics of wealth, division, and indifference.

And it is culture war too. It is initially about a war on understanding, on inclusiveness and awareness. But it is about more than that. It is a war on changing the lens through which we view society so that the origins of privilege are not questioned. Most especially that is a war on the culture of questioning itself. It is a demand that we all know our place and do not question why it might be what it is.

In so doing this is a war on education.

And also a war on the process of change that good education must always give rise to, and which charities, by asking questions, promoting education, and seeking reform, have always played a critical role. In that sense this is a war on the very nature of charity.

And why? To perpetuate a power structure that oppresses for the benefit of those who have gained from it at cost to those who have paid the very real price. That is what culture war, and politics through the lens of charity really looks like. When the definition of charity becomes the maintenance of the status quo when it has always been to challenge it by asking the quite essential question as to why charity is ever needed, then a deep malaise is exposed. Baroness Stowell exposes that malaise. Bizarrely, it is of her creation.

The need is to fix the system, not just to provide ‘sticking plasters’

Food Bank Cupboard stocked with tinned and packet foodImage by Staffs Live (CC BY-NC 2.0)

“The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.”

Franklin D. Roosevelt

 

It feels lately that we, like Lewis Carrol’s Alice, have fallen down a rabbit hole into an immensely troubling surreal situation with seemingly no idea how we are going to extricate ourselves.

Whether it is the distressing daily reports of Covid-19 deaths, the disturbing video accounts of the huge pressures on our NHS or care services, the political upheavals taking place across the Atlantic and elsewhere or the most serious challenge of all, climate change, it seems ever clearer that we are in Antonio Gramsci’s ‘time of monsters’ in which ‘the old world is dying and the new world struggles to be born’.

What that world will look like remains to be seen, but recent political events would seem to suggest that we still have some way to go before the ‘old world’ breathes its last. The pandemic, combined with the consequences of forty and more years of Neoliberalism Central which has infected every aspect of our lives and dominates political decision making, has created not only public disillusionment, but also petrification as our institutions sit in their blinkered bunkers holding on for dear life to all they knew.

Whether it’s the existing and growing union between government and global corporations, policy decisions which have increased inequality and poverty and encouraged charity, volunteering and philanthropy to take up the reins of public provision, or the promotion of sound finance as a vital component of good governance, the old structures are embedded in our consciousness.

It wasn’t always like this.

During the second world war, William Beveridge was appointed to investigate social security in Britain and his report, published in 1942, identified five major problems which prevented people from improving their lives. These were:

Want (caused by poverty)

Ignorance (caused by a lack of education)

Squalor (caused by poor housing

Idleness (caused by the lack of jobs or the ability to gain employment)

Disease (caused by inadequate health care provision)

It was recognised that government had a role to play in addressing those five ‘evils’ and as a result of the Beveridge report, the post-war government set up the social security system and pursued policies which aimed to address them including full employment. It may not have been perfect, but it changed people’s lives for the better.

Over recent decades, that connection between the state and publicly paid-for provision, management and delivery of services has been broken. Responsibility for such provision is increasingly being shifted into the charitable/voluntary sector, whilst at the same time, the dominant orthodoxy of individual responsibility has led to shaming and blaming people for their situation as the government takes a back-seat role.

Food banks have become a normalised feature of Britain, as Therese Coffey, the Tory minister for the Department for Work and Pensions, indicated last year when she referred to people using food banks as ‘customers’ and suggested they were a ‘perfect way to help the poor’. It implies that government has no role at all in ensuring the economic well-being of its citizens, and worse, that the 14 million Britons who do not have enough to live on are there through their own lack of moral fibre!

When charities buy into this picture and act as mitigators for a rotten economic system (which drives the poverty and inequality, that drive, in turn, the consequences including hunger, homelessness, and illness), they are not aiming to fix the system, but to provide sticking plasters. As such, it demonstrates how they, too, have been captured by an ideology and accept it without question.

This was made shockingly clear in a paid-for content article in this week’s Guardian. The CEO of the Bethany Christian Trust, when talking about tackling the problem of food insecurity said: ‘if by giving someone a meal we’re sitting them down with people they can talk to about debt counselling, mental health issues, addiction, domestic abuse, or whatever help they might need, then that plate of food can work so much harder’.

Rather than starting with the political roots of these problems, charities increasingly view them as issues to be solved through improving the capacity of the individuals themselves to manage the challenges they face.

Quite simply, this facilitates the shifting of blame onto people, rather than highlighting the failure of the government to make provision for its citizens and is classic neoliberal text. As Neil Valley suggests in his article in the New Internationalist ‘The Self-Help Myth’.

‘The pervasive rhetoric of personal responsibility has transformed the role of government and society in the neoliberal era. Where once the role of government was to safeguard the general happiness of the majority of citizens, albeit to varying degrees, its primary role now is to facilitate the conditions where each citizen can take on more and more individual responsibility, absolving the state from its responsibility towards its citizens.’

Then step in charities to fill the gap in service provision and provide the mitigating support for the rotten toxic system which has created the need in the first place and designates those in receipt of such support as customers rather than victims.

The increasingly pervasive narrative, which is being driven further by the pandemic crisis, is that charities and the voluntary sector should be at the heart of our local communities to ensure that vulnerable people don’t fall between the cracks, rather than publicly paid for, managed and delivered state provision.

It was, therefore, all the more disconcerting this week to read the proposal in the left-wing publication The Tribune that a National Food Service should be set up. Whilst its aims to serve the public good rather than private profit are indeed laudable, one has to question the logic.

Of course, one could not object to the removal of private companies delivering public services, given that the tentacles of private profit are growing exponentially as government distributes contracts to its friends and large corporations with few strings attached, whilst at the same time the coffers remain largely bare to serve the needs of those who have for decades been at the sharp end of government policies. The resulting poverty and inequality have been highlighted during this crisis.

The proposal, however, seems to suggest that we mitigate for the crisis of capitalism being played out in the growth of hunger through mutual on the ground action, rather than dealing with its root causes – government policy driven by ideology. We don’t need a plan to ‘respond’ to this fundamental crisis of capitalism, we need a plan to change it; to put public purpose and the interests of citizens, not to mention the planet, at the heart of all government policy.

Over the last few decades, working people have borne the consequences of a toxic economic ideology underpinned by the notion of monetary scarcity, which has led to the reduction in their share of their productivity, which has translated into lower wages, insecure employment and underemployment and a decline in living standards. Poverty is the direct result. The constant repetition of these ideas via politicians, think tanks, economists and the media has led us to believe that this is the inescapable default.

Government, far from serving its citizens, has overseen through its employment and other policies, huge disparities in wealth and access to resources, allowing, for example, chief executives of big corporations to earn many more times that of their employees, not to mention garner political influence as a result.

To add to this picture is the decimation of our post-war public and social security infrastructure, which existed to provide health and social care through various publicly paid for institutions, to ensure that those in need had access to shelter, food and warmth, in times of personal tragedy, sickness, unemployment or economic collapse. When this infrastructure was built, the profiteers had no place in this model and nor should they today.

Whilst the human suffering continues to play out across the nation, the government cynically continues with its U-turns on policy in the vain attempt to keep its MPs and the public on side. Last week, as noted in the MMT Lens, Boris Johnson told MPs that ‘most people would rather see a focus on jobs and growth in wages than…welfare.’ This week, with his signature tune U-Turn, he has indicated a potential rethink of ending the £20 a week Universal Credit uplift, saying he wanted to ensure that ‘people don’t suffer as a result of the economic consequences of the pandemic’. You couldn’t make it up.

Yes, indeed, to more jobs through the implementation of a Job Guarantee, to drive better wages overall and restore the government’s role as the price setter and rebuilding public service provision. But in the meantime, let’s ensure while the consequences of the pandemic continue to cause economic and social pain, that all people have enough to pay their bills and keep food on the table without worry, stress or having to get into debt to keep their heads above water. We have witnessed the power of the public purse, let us not allow that knowledge to be polluted by the restoration of household budget politics.

It is regrettable that politicians, journalists, institutions and think tanks, in their weekly forecasts of doom and gloom, continue to build up the narrative of money scarcity and a future price to pay for this massive round of government monetary intervention. A narrative that will be used to justify eventual hard decisions or another round of austerity in some form or another.

Whilst the livelihoods of many people lie in the balance, not just for now but in a rapidly changing world, we still have to endure the false notions of tax rises to pay for government spending and the penchant for sound finance. Such narratives suggest, not only that people must suffer, but also that the cost of saving our planet from climactic destruction will be too high.

The fact that the government continues to find huge sums of money to support businesses and yet quibbles over a few pounds to working people, suggesting that it is unaffordable should surely be a public conversation starter!

As the chancellor opines that there are some hard choices ahead, one of his treasury ministers clearly of the deficit dove variety, softens the blow by suggesting that the need for tax rises to tackle the record levels of government borrowing could be delayed at least until the economy ‘bounces back’. As if somehow increased tax revenues equate to the capacity to spend or pay down the national debt.

The experts at the Institute of Fiscal Studies and other think tanks then put the fear of God into the public that £40bn in tax rises might be necessary to put the public finances back onto a sustainable footing. Thus, making that public even more cautious about the government’s future spending plans. Self-fulfilling prophecies come to mind.

And then, just this week, when people thought that the vast round of government spending signified a change of approach to managing the economy, Rishi Sunak told Conservative MPs that he will be using his March budget to begin the process of restoring ‘order’ to the public finances through implementing higher taxes.

To those Tories who would like to see the Universal Credit uplift continue beyond April, he gave a reminder of its high cost which represents, according to his calculations, an equivalent of 1p on income tax plus 5p per litre on fuel duty. Thus, further reinforcing the idea that the provision of higher welfare benefits means collecting tax from elsewhere to cover it.

The ‘someone, somewhere will have to pay for it’ model of the state finances will no doubt be used cynically to drive further wedges between the haves and the have nots and justify the further decimation of the already inadequate social security safety net.

According to this narrative, the magic porridge pot is running on empty and needs replenishing in order to pay down debt and avoid a giant burden for future generations.

This tale of supposed coming woe serves to keep people in their place while reinforcing the old myths about how governments spend. It displays both economic illiteracy and a disregard for the lives of those who will lose out as a result, not to mention addressing the biggest challenge of all – climate change.

And then at the ‘left’ end of the household budget scale, we have economists, opposition politicians, unions and other so-called experts, urging the Chancellor to take advantage of low borrowing rates of interest to avoid tax rises until the economy gets back on its feet and restores tax revenues, or reinforcing the false narratives about taxing the rich to pay for the pandemic. The household budget model is endemic and those on the political left keep shooting themselves in the foot repeatedly.

A paper published by the LSE’s International Inequalities Institute last December, using data from 18 OECD countries over the last five decades, concluded unsurprisingly enough that tax cuts for the rich didn’t trickle down; that they contributed to inequality and did little to stimulate business investment.

The authors then went on to suggest that it was time to tax the rich more to repair the public finances. This was backed up in the same month when the Wealth Tax Commission, founded in April of last year, concluded that a one-off wealth tax would raise significant revenue and be fairer and more efficient than other alternatives. To be exact, it suggested that a ‘one-off wealth tax on millionaire couples would raise £260 billion’ The implication being yet again that such a tax could be used to repair the public finances.

Whilst we can’t avoid these false tropes, which lead the public astray and reinforce the messages that government spends like a household, we can challenge them. When Matt Hancock, the Secretary of State for Health and Social Care, bleats on as he did this week about the NHS Pay review body taking ‘account of the extremely challenging fiscal and economic context’ in its decision about future pay rises, we can show the public that such decisions have no connection, either with the current state of the public finances or the future monetary affordability of those pay rises.

We can reinforce the message that curtailing public sector pay won’t increase the ability of the government to ‘set the public finances straight’, any more than the decade of austerity did. It could actually have a negative, indeed disastrous, effect on the economy at a time when it will, without doubt, need continuing government support.

Aside from the fact that public sector and, indeed, other key workers have seen their pay dwindle in real terms as a result of a decade of pay freezes or inadequate employment legislation, and that the pandemic has revealed the vital nature of their contribution to society, all increasing taxation will do is leave less money for working people to spend into both the national and local economies. Also, should that increased taxation fall on corporations, (as is being suggested) who will likely pass that additional cost on through higher prices to working people anyway, it will create a double whammy effect.

Whilst a pay rise will increase tax revenues, it will not increase the government’s capacity to spend. But we see the false narrative again in a study published this week by the London Economic Consultancy. The report claimed that the government would recover 81% of the cost of any pay rise in additional taxes, which would, in turn, have significant ‘knock-on’ benefits for the Treasury. Clearly suggesting that tax funds its spending.

Whether from the left or right of the political spectrum, the public is treated daily to a mishmash of false information dictated by the dominant economic paradigm which masquerades as truth. It’s no wonder that people are confused and feel disempowered or turned off by politics and economics, which they feel do not relate to their lives at all, even though, in reality, these things have everything to do with them.

While politicians, journalists and economists argue about monetary affordability and who should pay for government spending, people are dying and will continue to die for the want of a government that puts their interests first.

What happens next will depend on a successful challenge through raising public awareness that there is indeed an alternative to the vast disparities in wealth, the rise of poverty and inequality, the whittling down of democracy and increased corporate dominance in our lives. And it starts with understanding how government really spends.

 

Upcoming Event

Phil Armstrong in Conversation with Pavlina Tcherneva – Online

January 24th 2021 @ 4:00 pm – 5:30 pm GMT

GIMMS is delighted to present another in its series ‘In Conversation’.

Phil Armstrong, author of ‘Can Heterodox Economics Make a Difference’ published in November 2020, will be talking to Pavlina Tcherneva.

Pavlina is program director and associate professor of economics at Bard College and a research associate at the Levy Economics Institute. She conducts research in the fields of modern monetary theory and public policy and has collaborated with policymakers from around the world on developing and evaluating various job-creation programmes. Her work on the Job Guarantee spans over 20 years.

Author of the recently published book ‘The Case for a Job Guarantee’, she challenges us to imagine a world where the phantom of unemployment is banished and anyone who seeks decent living-wage work can find it – guaranteed. It will be of particular relevance as we begin to grapple with the economic fall-out of the Covid-19 pandemic but for anyone passionate about social justice and building a fairer economy it should be essential reading.

We invite you to join us for this informal event which we are sure will be both stimulating and insightful.

Tickets via Eventbrite

 

Past Event

Phil Armstrong in Conversation with Fadhel Kaboub – Online

Author and MMT Scholar Phil Armstrong talks to professor of economics and president of the Global Institute for Sustainable Prosperity Fadhel Kaboub about how MMT insights apply to the global south, colonial reparations, the MMT Job Guarantee contrasted with Universal Basic Income, and much more.

 

 

Audio via the MMT Podcast here

 

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The Gower Initiative for Money Studies is run by volunteers and relies on donations to continue its work. If you would like to donate, please see our donations page here

 

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The post The need is to fix the system, not just to provide ‘sticking plasters’ appeared first on The Gower Initiative for Modern Money Studies.

Why Does Inequality Produce High Crime and Low Trust?

Published by Anonymous (not verified) on Sat, 23/01/2021 - 1:03pm in

Tags 

inequality

Shuffling of resources so that the worst off are lifted up and the top end is brought down can dramatically increase trust.

The post Why Does Inequality Produce High Crime and Low Trust? appeared first on Evonomics.

The January Taxcast

Published by Anonymous (not verified) on Fri, 22/01/2021 - 7:41pm in

Tags 

inequality

In this episode of the Tax Justice Network’s monthly podcast, the Taxcast:

  • This month Naomi Fowler speaks to activist and writer Ben Phillips about how past struggles for justice were won and how we can win them again. We discuss valuable lessons he learned from living and working around the world which he writes about in his book How To Fight Inequality and why that fight needs you.
  • Plus: Why is the Chinese economy so successful? Naomi discusses with John Christensen the rise of China and, unless they chuck shareholder capitalism, the continuing demise of the US and the UK.
  • Transcript is available here (some has been transcribed using automation so may have small inaccuracies)

Featuring:

If we on our side have every fact and every policy and the other side has all of the stories, the passion, the emotion, the excitement, then we’ll lose”

~Ben Phillips, author of HOW TO FIGHT INEQUALITY and why that fight needs you.

From where I’m sitting, this is the end of the line for Thatcherism and for shareholder capitalism, it’s made a tiny number of people, bankers and private equity people and mergers and acquisition specialists spectacularly rich in the past 40 years, but overall the development strategy has failed the vast majority of people in the United States and in Britain and in other countries that went down this route.”

~ John Christensen, Tax Justice Network

Want more Taxcasts? The full playlist is here. Or here.

Zombie Arguments Against Fiscal Stimulus

Published by Anonymous (not verified) on Wed, 20/01/2021 - 10:58pm in

Busy days. I just want to drop a quick note on a piece just published on the Financial Times that is puzzling on many levels. Ruchir Sharma pleads against Joe Biden’s stimulus on the ground that it risks “exacerbating inequality and low productivity growth”. The bulk of the argument is in this paragraph:

Mr Biden captured this elite view perfectly when he said, in announcing his spending plan: “With interest rates at historic lows, we cannot afford inaction.”

This view overlooks the corrosive effects that ever higher deficits and debt have already had on the global economy. These effects, unlike roaring inflation or the dollar’s demise, are not speculative warnings of a future crisis. There is increasing evidence, from the Bank for International Settlements, the OECD and Wall Street that four straight decades of growing government intervention in the economy have led to slowing productivity growth — shrinking the overall pie — and rising wealth inequality.

If one reads the two papers cited by Sharma, they say, in a nutshell, (a) that expansionary monetary policies have deepened income inequality via an increase in asset prices (while for low interest rates and bond prices there is no clear link); (b) that the increasing share of zombie firms drags down the performance of more productive firms thus slowing down overall productivity growth.

So far so good. So where is the problem? Linking these results to excessive debt and deficit, to the “constant stimulus”, is stretched (and I am being kind). A clear case of Zombie Economics.

Let’s start with monetary policy and its impact on inequality (side note: the effect is not so clear-cut). One may see expansionary monetary policies as the consequence of fiscal dominance, excessive deficit and debt that force central banks to finance the government. But, they can also be seen as the consequence of stagnant aggregate demand that is not properly addressed by excessively restrictive fiscal policies, forcing central banks to step in. Many have argued in the past decade that especially in the Eurozone one of the causes of central bank activism was the inertia of fiscal policies. Don’t take my word. Read former ECB President Mario Draghi’s Farewell speech, in October 2019:

Today, we are in a situation where low interest rates are not delivering the same degree of stimulus as in the past, because the rate of return on investment in the economy has fallen. Monetary policy can still achieve its objective, but it can do so faster and with fewer side effects if fiscal policies are aligned with it. This is why, since 2014, the ECB has gradually placed more emphasis on the macroeconomic policy mix in the euro area.

A more active fiscal policy in the euro area would make it possible to adjust our policies more quickly and lead to higher interest rates.

This is as straightforward as a central banker can be: in order to go back to standard monetary policy making, fiscal policy needs to step up its game. Notice that Draghi also hints to another source of problems: the causality does not go from expansionary policies to low interest rates, but the other way round. We have been living in a a long period of secular stagnation, excess savings, low interest rates and chronic demand deficiency which monetary policy expansion can accommodate by keeping its rates close to “the natural” rate, but not address. Once again, fiscal policy should do the job.

Regarding zombie firms, it is unclear, barring the current and very special situation created by the pandemics, why this would prove that stimulus is unwarranted. The paper describes a secular trend whose roots are in insufficient business investment and a drop in potential growth rate (that in turn the authors link to a drop in multi-factor productivity). The debate on the role of fiscal policy in these matters is as old as macroeconomics. In the past ten years, nevertheless, the cursor has moved against the Sharma’s priors and an increasing body of literature points to crowding-in effects: especially when the stock of public capital is too low (as is the case in most advanced countries), an increase of public investment — “constant stimulus”– has a positive impact on private investment and potential growth (see for reference the most recent IMF fiscal monitor and the chapter by EIB economists of the European Public Investment Outlook). Lack of public investment is also widely believed to be one of the factors keeping our economies stuck in secular stagnation.

Fifteen years ago one could have read Sharma’s case against fiscal policy on many (more or less prestigious) outlets. Even then, it would have been easy to argue that it was flawed and fundamentally built on an ideological prior. Today, it seems simply written by somebody living in another galaxy.

The Covid-19 pandemic shows the need for change. For a real ‘Reset’.

Button with label "Push to reset the world"Photo by Jose Antonio Gallego Vázquez on Unsplash

‘We live in capitalism. Its power seems inescapable. So did the divine right of kings.’

Ursula K Le Guin

The year 2020 will be not be remembered with any great affection. So much suffering, loss of human life and economic uncertainty has left the nation in turmoil. Whilst in normal times we would be welcoming the new year with resolutions and hope for better days to come, the prospects for the future remain very uncertain.

Whilst the government’s handling of this pandemic crisis has been chaotic and indecisive with disastrous consequences, it has also revealed the dire state of our public and social infrastructure for which decades of ideologically driven government policies have been responsible. That, combined with the vast wealth and other inequalities that exist in both rich and poor countries across the planet and the climate tsunami following up frighteningly behind, should leave a bad taste in our collective mouth. It should start to make us question the very foundations of the economic model now turning to sand before our very eyes.

Covid-19 has exposed in the most distressing way the damaging consequences of the pursuit of balanced budget narratives which have allowed governments to justify public sector rationalisation or austerity on the grounds of unaffordability, and overseen a huge increase in poverty and inequality. Successive governments have abdicated their responsibility for the lives of citizens; their responsibility to create a fairer distribution of wealth and real resources and ensure that the public infrastructure meets their needs. Instead, they have plumped in favour of that elusive but all-seeing ‘god of the market’ which, in real terms, has meant ceding control to global corporations who direct the policy orchestra and pouring public money into the pockets of those same corporations with little transparency or accountability.

Whilst the government has found the power of the public purse to manage this crisis, there have been winners and losers throughout which reflect its ideological persuasion. It has only been with public pressure that it has been forced into political U-turns to help some of the poorest people in our communities, whilst leaving still others in distress and without adequate support. The road to Damascus moment still eludes a government which has chosen a path that so far has only led to economic hardship and inequity for many and yet great wealth for a few others.

It has also done so with the usual threats of a financial price to pay in the future to keep the household budget narratives of state spending alive and well. It would not do for the public to be disabused of the notion that taxes fund spending, that government has to borrow to cover its deficit and that public debt is real and will require difficult decisions at some unspecified time in the future. Such narratives are vital to government and will, without challenge, allow them to be able to finish off the job of destroying publicly paid for and managed public and social infrastructure and thus ensure the continuing dominance of global corporate power. We do indeed face a continuing hollowing out of democracy in favour of a growing alliance between the state and big business and the big political revolving door.

Whilst GIMMS and other educational organisations across the world have made huge strides in raising awareness of how money really works, the task ahead remains a daunting one. The weekly news is testament to the ongoing consequences of government policies and the spun narratives of how government spends but also encouragingly shows the power the public has to effect change, and not just through the ballot box. The on-going saga of free school meals continues to rumble on and elicit government U-turns. The latest, and most shameful, were the pictures on social media of the meagre ‘rations’ from a private company contracted and paid huge sums to provide substandard food packs which it turned out largely reflected government guidelines and did not meet the standards for the nutritious, balanced diet all children need to grow and thrive. It is to be regretted that the government, in the same week, went on to tell headteachers in England not to supply vouchers and food parcels to disadvantaged children during the February half-term, signalling it was already doing enough which is clearly not the case. There are no excuses for hungry children, or hungry adults for that matter.

The fiasco was yet another example of public money being poured into private profit and at the same time failing to address the reasons for children going hungry in the first place. Poverty and hunger are not new phenomena. Covid-19 has, without doubt, put a spotlight on the prevailing economic system and the economic decisions of successive governments which have not only been responsible for increasing poverty and inequality through employment, welfare and taxation policies but also shifted blame and created widening societal divisions which allow the real authors of economic distress to go scot-free.

It is therefore shameful that the Chancellor Rishi Sunak whilst facing opposition from campaigners is still considering cutting the meagre £20 per week universal credit uplift which has helped people struggling to get by during the pandemic. The consequences of the crisis will be with us for many months to come, possibly years, and therefore the government with its power of the public purse has no excuses when it comes to ensuring that its citizens can pay their bills and put food on the table while the disruption continues. Instead, its policy responses have proved not strategic but piecemeal and ill-thought-out with plenty of U-turns along the way.

Whilst we need the power of the public purse to mitigate the economic consequences of the current crisis, we also need a government with a long-term strategy for addressing the poverty and inequality that has arisen over decades and which has allowed top managers to reap excessive monetary rewards whilst depriving working people and their families, whose standards of living have declined substantially through low incomes and insecure employment.

Boris Johnson suggested earlier this week that he was still in favour of reducing Universal Credit saying:

‘what we want to see is jobs, we want people in employment, and we want to see the economy bouncing back. And I think most people in this country want to see a focus on jobs and growth in wages than on welfare’.

A change of heart? Given that the Tory government has presided over exactly the opposite over the last 10 years through austerity and economic policies which have increased economic instability whilst at the same time serving the corporate estate, instead, it is likely to be yet another in a long line of so far undelivered promises to level up. However, the sentiment is correct and is what should be driving government policy. We need a recognition of the power of the public purse to pursue full employment through a Job Guarantee and the vested power of government to legislate fair employment terms and conditions with the aim of shifting the balance of power back to working people instead of where it currently lies in corporate hands with government approval. We need a government prepared to address the key issues of our time using its currency-issuing powers, not just for the coming months but for always. Whilst Rishi Sunak calls upon the nation to spend the savings resulting from lockdown to get the economy going again (aside from the fact that he is turning a blind eye to the many millions of people as reported by the Resolution Think Thank this week who have lost out or got into further debt as a result of the pandemic adding to their already insecure lives) the looming crisis of climate change has been put on the back burner and time is running out. The god of growth must be worshipped anew to get the economy back into shape.

Aside from the fact that people are unlikely to spend their savings like drunken sailors in the near future, given the on-going uncertainty about the economy and jobs, exhorting the gods of growth and indiscriminate private consumption as a solution to economic slow-down would not only be folly but denies the clear power of government to spend to effect real and sustainable change.

We need a sea change in how we live our lives to address the already happening climate catastrophe and indeed, it will only be through large scale government action in spending policies and legislation that will enable this to happen. There is a pressing need for a national investment strategy that includes a massive and long-term investment in education and training in order to secure our future productive capacity. We much focus on high-skilled, low-carbon and well-paid jobs both for the private sector and in a much-expanded public sector to ensure high-quality basic services are provided to everyone, including our disabled and elderly citizens. Our nation must become more productive if we are to reduce our working week and support our retirees and support to those nations without the necessary real resources to support their communities.

The overarching need is to protect our environment for future generations which should also include acting to redress the vast wealth inequalities that exist. We need to restore our sense of the value of publicly paid for and provided public sector work to national well-being, implement a Job Guarantee to provide stability through an effective countercyclical response to the inevitable economic ups and downs all economies face, and a living income for anyone who is unable to work for health reasons or caring or other essential duties including higher education. Of course, these will not be magic bullets to bring about a perfect world, but provide a basis for a conversation that we need to have.

These are important decisions, not just concerning the big macroeconomic questions about creating an efficient functioning economy, but also relating to the sort of society we want to see. For left-wing progressives, this would suggest creating a fairer and more equitable society where people have sufficient wages to live comfortably with adequate nutrition and good living conditions as well as good public services such as health and education. Assuming that the future will bring forth a political party that has the express intention of addressing these issues, change is in our collective hands as an electorate and we should not forget the power we hold.

It is regrettable that currently there is no such party dedicated to the change we need and that all roads are still leading to an ever-distorted capitalism wherever you place the X on the ballot paper.

Whilst the very real human consequences of government decisions and its policies continue to play out in our communities and our families the government, opposition politicians, economists and journalists continue to pound out the messages of monetary scarcity; either talking about the need for ‘hard choices’ to deal with the deterioration of the public finances or delaying the ‘repayment pain’ until economic conditions will allow.

Whether it’s Rishi Sunak the Chancellor or his shadow opposition sidekick Labour’s Annaliese Dodds, they both adhere to a household budget narrative of the public accounts, in other words, the diktat of sound finance as if a government suffered from the same constraints as business. The operative question in either case being, at what point do you enact such fiscal tightening, not whether you actually need to. How the state really spends cannot have escaped their notice, and yet they stick to the orthodoxy like glue.

Whilst that is undeniably to be expected with the Conservatives, whose agenda is more about creating an alliance with big business under cover of stories about monetary scarcity and ‘hard choices’, Annaliese Dodds in this week’s Mais lecture indicated clearly her party’s on-going adherence to the false notion that government constraints are monetary. Whilst, to be fair, she gave a cutting analysis of the effects of government policies on people’s lives both before and after the arrival of Covid-19, she stuck to the orthodox economic mantras. Namely keeping the City sweet by maintaining the joke of supposed Central Bank independence and having a ‘responsible approach to government debt.

She summarised her approach to fiscal policy as requiring ‘a set of rules around both annual and the stock of debt, that simultaneously demonstrates a prudent approach to the public finances and leaves space for investment in the future and the ability to adapt to crises’. A sound approach to the public finances she said must ‘also include consideration of the quality and effectiveness of public spending.’ Whilst such evaluation should always be a part of government spending strategies (and clearly, we have seen in recent months and years the exact opposite) the concept of sound finance continues to be the guiding doctrine of politicians on both sides of the political spectrum. They might have different spending objectives, but both are couched within the clear limitations of household budget thinking.

As society implodes as a result of rising poverty, inequality and ill health which has arisen as a result of government policies and placed increasing pressures on public services such as our NHS which this last year has bravely served the nation in a deliberately created environment of insufficient staff, facilities and other resources, there is only one direction in which we can place the blame. Governments whose decisions have favoured market solutions through privatisation and legislative policies which favour them – with shocking consequences.

In similarity to nature’s web of life, which is defined by its interdependence, our economy does not exist as disparate parts. The economy represents the lives of working people and the businesses that employ them, and its health is reliant on the public and social infrastructure provided by the government to support it. Remove one vital link and you risk that eventually the whole will collapse.

This is the frightening consequence we already face, not just in the real but finite resources upon which our societies are built and owe their existence, but also our dependency on the goodwill and care we express for others. As reliance on charitable institutions to feed hungry people or deal with rising homelessness increases, or rich philanthropists replace public institutions with the equivalent of poor law boards dictating the pace and deciding who will be a beneficiary, our society will continue to break down on the basis of a ‘convenient lie’ that the state has no money of its own and there is no alternative course of action.

Instead of examining the public accounts and deducting from the financial position the health of a country, a future government should be turning that idea on its head to see the reality of the challenges we face. The reality of the real constraints which are not money but real resources and how they can be managed fairly in the interests of all citizens. The fast-approaching reality of climate change and its consequences threaten to engulf us if world governments fail to work together to create better, fairer and more sustainable solutions.

We need a ‘Reset’. Not the ‘Great Reset’ being promoted by the World Economic Forum which, whilst sounding just the thing to address rising inequality and climate disaster, will maintain the same power structures with the same corporations dictating the rules in the interests of accumulating more profit and wealth whilst still clinging to the sham economic model which seeks to keep power in the hands of the few.

We need quite a different ‘Reset’ as suggested by Associate Professor Fadhel Kaboub in a GIMMS ‘in conversation’ event last week. One where public purpose, not profit or greed, directs government spending and legislative actions for a sustainable and fairer future and without which the light at the end of the tunnel will recede, not get closer.

There is an alternative and history is still to be written on the choices we make. We once believed that the Earth was flat, that it was at the centre of the universe and the sun and planets revolved around it. Those notions were disproved by the observations of scientists like Copernicus and Galileo. We need now to disprove the notions that money is scarce – not because knowing it makes a difference in itself, but because knowing it will enable us to decide what history will eventually record about the decisions that were taken as a result.

We can be on the right side of history if we choose to be.

 

Upcoming Event

Phil Armstrong in Conversation with Pavlina Tcherneva – Online

January 24th 2021 @ 4:00 pm – 5:30 pm GMT

GIMMS is delighted to present another in its series ‘In Conversation’.

Phil Armstrong, author of ‘Can Heterodox Economics Make a Difference’ published in November 2020, will be talking to Pavlina Tcherneva.

Pavlina is program director and associate professor of economics at Bard College and a research associate at the Levy Economics Institute. She conducts research in the fields of modern monetary theory and public policy and has collaborated with policymakers from around the world on developing and evaluating various job-creation programmes. Her work on the Job Guarantee spans over 20 years.

Author of the recently published book ‘The Case for a Job Guarantee’, she challenges us to imagine a world where the phantom of unemployment is banished and anyone who seeks decent living-wage work can find it – guaranteed. It will be of particular relevance as we begin to grapple with the economic fall-out of the Covid-19 pandemic but for anyone passionate about social justice and building a fairer economy it should be essential reading.

We invite you to join us for this informal event which we are sure will be both stimulating and insightful.

Tickets via Eventbrite

 

Past Event

Phil Armstrong in Conversation with Fadhel Kaboub – Online

Author and MMT Scholar Phil Armstrong talks to professor of economics and president of the Global Institute for Sustainable Prosperity Fadhel Kaboub about how MMT insights apply to the global south, colonial reparations, the MMT Job Guarantee contrasted with Universal Basic Income, and much more.

Audio via the MMT Podcast here

Video will be available soon.

 

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Support us

The Gower Initiative for Money Studies is run by volunteers and relies on donations to continue its work. If you would like to donate, please see our donations page here

 

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The post The Covid-19 pandemic shows the need for change. For a real ‘Reset’. appeared first on The Gower Initiative for Modern Money Studies.

Head Hand Heart

Published by Anonymous (not verified) on Fri, 15/01/2021 - 5:01pm in

We can all see that we live in a world of misallocated capital, but we also live in a society of misallocated labour.

We disproportionately praise, and pay, those who work with their heads. Yet when it comes to the people who work with their hands or their hearts, well, they end up with crumbs in comparison.

So how did the cult of the knowledge worker become so pervasive? Host, Ross Ashcroft met up with author, David Goodhart, to discuss.

The post Head Hand Heart appeared first on Renegade Inc.

Head Hand Heart

Published by Anonymous (not verified) on Fri, 15/01/2021 - 5:01pm in

We can all see that we live in a world of misallocated capital, but we also live in a society of misallocated labour.

We disproportionately praise, and pay, those who work with their heads. Yet when it comes to the people who work with their hands or their hearts, well, they end up with crumbs in comparison.

So how did the cult of the knowledge worker become so pervasive? Host, Ross Ashcroft met up with author, David Goodhart, to discuss.

The post Head Hand Heart appeared first on Renegade Inc.

The Rise of Human Capital Theory

Published by Anonymous (not verified) on Fri, 15/01/2021 - 2:23am in

If there was an award for the most pernicious scientific idea ever, what theory should get first prize? I would vote for eugenics, a theory that claims we can ‘improve’ humanity through selective breeding.

If there was a second prize, I’d give it to human capital theory. I think of human capital theory as ‘eugenics light’. It purges the idea that abilities are innate (and that we should selectively breed the ‘fit’). But human capital theory keeps the Nietzschean idea that humanity’s success can be attributed mostly to gifted übermensch.

Among us, human capital theory claims, walk individuals who are unfathomably productive. These übermensch produce more in an hour than most of us do in a week. Take just 1% of these top individuals, and you’ll find that they outproduce the bottom half of society!1 According to human capital theory, then, we could do away with half of society with no great loss to economic output. Of course, few human-capital theorists advocate such atrocities. But my point is that their theory contains the seeds of eugenics … even Nazism.

The ethical problems with eugenics and human capital theory are easy to spot. But what about the scientific problems? These are more difficult to tease out. Eugenics is based on the hard truth that many traits are heritable. Similarly, human capital theory is based on the reality that some people earn hundreds of times more income than others. Where both theories go wrong, however, is that they misunderstand humanity’s social nature.

Yes, many individual traits are heritable. But it is a fallacy that traits that are good for individuals are also good for society. That’s the core scientific flaw in eugenics. And yes, it’s true that some people earn far more than others. But it’s a fallacy that this income is caused by traits of the individual. In reality, income is a social trait.

My goal in this post is not to rigorously debunk human capital theory. (I’ve done that here.) Instead, I’m going to chart its rise and speculate about its eventual fall. I’ll do so by looking at the rise and fall of eugenics. What’s ominous is that the theory that debunks eugenics is today still more obscure than eugenics itself. In a century, will something similar hold for the theory that debunks the idea of human capital?

The rise and fall of eugenics

When Charles Darwin published his opus On the Origin of Species in 1859, it was only a matter of time before his ideas would be abused.2 Darwin argued that species arose by survival of the fittest. Each generation, some individuals reproduced more than others, passing on their traits to the next generation. Over time, this caused organisms to adapt to their environment, eventually giving rise to new species. It was evolution by natural selection.

In the wild, this process is blind. (Nature has no goal.) But when humans entered the equation, natural selection started to have a conscious overseer. For millennia, humans have selectively bred domestic animals to have traits that we desired. Darwin called this guided process ‘artificial selection’. Its success in creating distinct breeds of domestic animals, he argued, was evidence for the wider process of evolution by natural selection.

If we could change the traits of domestic animals through selective breeding, it seemed plausible that we could do the same with humans. And with that idea, eugenics was born. The word (which means ‘well-born’) was coined by 19th-century polymath Francis Galton, who was himself of impeccable pedigree. He was Charles Darwin’s half cousin.

The prospect of selectively breeding humans raises obvious ethical problems. It requires first deciding who is ‘well-born’ and who is not. (What are the criteria for this decision? And more importantly, who gets to decide?) And once this decision is made, the reproductive rights of the non-well-born must be removed. That rings of fascism.

Despite the dubious ethics, eugenics became shockingly popular in the early 20th century. In the United States, ‘feeble minded’ individuals were sterilized en masse. And later, Nazi Germany simply exterminated (by the millions) ‘unfit’ individuals.

This monstrosity is written in mass graves throughout Europe. But it is also written in the scientific record. Figure 1 shows the frequency of the term ‘eugenics’ in scientific papers. Its use exploded at the turn of the 20th century and remained popular until the end of World War II. It wasn’t until the horrors of the Holocaust were revealed that eugenics became disgraced. On that front, the German term for eugenics — ‘rassenhygiene’ (racial hygiene) — peaked ominously as the Holocaust was perpetrated.

Figure 1: The rise and fall of eugenics. I’ve plotted here the relative frequency of scientific papers containing the words ‘eugenic’ and ‘rassenhygiene’ in their titles. I’ve smoothed the trend using a LOESS regression. [Sources and methods]

Productive individuals, productive society?

Barbarous as it is, let’s put aside the ethical problems with eugenics. Even then, the science is bullshit. The premise is that if we selectively breed for traits that we (the eugenicists) find desirable, the spread of these traits will lead to a better society. What are these ‘good’ traits? I’ll let the eugenicists speak for themselves. Figure 2 shows a eugenics poster from 1926. It reads:

Some people are born to be a burden on the rest.

Every 15 seconds $100 of your money goes for the care of persons with bad heredity such as the insane feeble-minded, criminals & other defectives.

Every 7½ minutes a high grade person is born in the United States will (sic) will have ability to do creative work & be fit for leadership. About 4% of all Americans come within this class.

Figure 2: A burden on the rest. A eugenics poster from the 1926 Philadelphia Sesqui-Centennial Exhibition. [Source: Transforming Better Babies into Fitter Families: Archival Resources and the History of the American Eugenics Movement, 1908-1930]

The logic in this eugenics poster is hard to miss. Some people, the eugenicists claim, are unproductive and do not contribute to society. These people should reproduce less. Meanwhile, ‘high-grade’ productive individuals should reproduce more. The result will be a better society.

This sentiment is morally repugnant, yes. But might it be true? If we selectively bred ‘productive’ individuals, would the result be a more productive society? Fortunately, no one has done this experiment on humans. But it has been done on domestic animals. And the results completely undermine the eugenicists’ arguments.

In the 1990s, geneticist William Muir conducted experiments on chickens to see what would improve egg-laying productivity. In one trial, he did exactly what the eugenicists recommend — he let only the most productive hens reproduce. The results were disastrous. Egg-laying productivity didn’t increase. It plummeted. Why? Because the resulting breed of hens was psychopathic. Instead of producing eggs, these ‘uber-hens’ fought amongst themselves, sometimes to the death.

The reason this experiment didn’t work is that egg-laying productivity is not an isolated property of the individual hen. It is a joint property of the hen and her social environment. In Muir’s experiment, the most productive hens laid more eggs not because they were innately more productive, but because they suppressed the productivity of less dominant chickens. By selecting for individual productivity, Muir had inadvertently bred for social dominance. The result was a breed of bully chicken that couldn’t tolerate others.

The lesson here is that in social animals, traits that can be measured among individuals (like productivity) may not actually be traits of the individual. Instead, they are joint traits of both the individual and their social environment. Here’s evolutionary biologist David Sloan Wilson reflecting on this fact:

Muir’s experiments … challenge what it means for a trait to be regarded as an individual trait. If by “individual trait” we mean a trait that can be measured in an individual, then egg productivity in hens qualifies. You just count the number of eggs that emerge from the hind end of a hen. If by “individual trait” we mean the process that resulted in the trait, then egg productivity in hens does not qualify. Instead, it is a social trait that depends not only on the properties of the individual hen but also on the properties of the hen’s social environment.

(David Sloan Wilson in When the Strong Outbreed the Weak)

A key problem with eugenics is that it neglects the social nature of human traits. It assumes that productivity is an innate trait of the individual, and that breeding for this trait would lead to a better society. It’s a seductive idea that is deeply flawed. In all likelihood, selectively breeding people for productivity would, like chickens, lead to a psychopathic strain of human.

The rise of human capital theory

After the horrors of the Holocaust, eugenics fell into disrepute. As a result, few people today dare argue that we should selectively breed humans for productivity. Still, the sentiment behind eugenics (that some people are far more productive than others) lingers on in mainstream academia. It survives — even thrives — in human capital theory.

The ground work for human capital theory was laid just as eugenics fell out of favor. In the 1950s, economists at the University of Chicago tackled the question of individual income. Why do some people earn more than others? The explanation that these economists settled on was that income resulted from productivity. So a CEO who earns hundreds of times more than a janitor does so for a simple reason: the CEO contributes far more to society.

The claim that income stems from productivity was not new. It dated back to the 19th-century work of John Bates Clark and Philip Wicksteed, founders of the neoclassical theory of marginal productivity.3 Clark and Wicksteed, though, were concerned only with the income of social classes. What the Chicago-school economists did was expand productivist theory to individuals.

Doing so required inventing a new form of capital. The idea was that individuals’ skills and abilities actually constituted a stock of capital — human capital. This stock made individuals more productive, and hence, earn more income. Figure 3 shows key papers that initiated human capital theory.

Figure 3: Key papers that initiated human capital theory. The theory began in the late 1950s and early 1960s with these papers by Chicago-school economists Gary Becker, Jacob Mincer, and Theodore Schultz.

The idea that skills constituted ‘human capital’ was initially greeted with skepticism. For one thing, the term itself smacked of slavery. (Capital is property, so ‘human capital’ implies human property.) For another, human capital theory overtly justified inequality. It implied that no matter how fat their incomes, the rich always earned what they produced. Any attempt (by the government) to redistribute income would therefore ‘distort’ the natural order. During the 1950s and 1960s, there was little tolerance for such views. It was the era of welfare-state expansion, driven by Keynesian-style thinking. Yes, big government may have been ‘distorting’ the free market — but society seemed all the better for it.

Until the 1970s, human capital theory remained obscure. But then politics began to change. In the words of Ronald Reagan, “People were tired of wasteful government programs and welfare chisellers”. The welfare system was not a social safety net, Reagan declared. It was a “creator and reinforcer of dependency.”

Reagan’s language, you’ll note, is eerily similar to the eugenics sentiment of old:

Some people are born to be a burden on the rest.

Yes, Reagan removed the crass genetic component. But the sentiment remained the same:

Some people are a burden on the rest.

The stage was set for a return to eugenics-style thinking — to the idea that the poor were a burden on the rich (not the other way around). As a result, the fortunes of human capital theory rose.

Figure 4 tracks this rise. I’ve plotted here the portion of scientific papers that contain the words ‘human capital’ in their title. The first spat of papers appeared in the late 1950s and early 1960s, authored by Chicago-school economists Jacob Mincer, Gary Becker, and Theodore Schultz. This trio constituted the first generation of human capital theorists. By the 1970s they were famous, but their academic output soon tapered off.4 In the 1990s, a second generation of economists took up the human-capital mantle. By then, neoliberal politics was in full swing. The fact that human capital theory explicitly justified inequality was no longer a liability. It was a selling point. And so the theory proliferated.

Figure 4: The rise of human capital theory. I’ve plotted here the frequency of the term ‘human capital’ in the titles of scientific papers. The blue line shows raw data. The red line shows the smoothed trend. [Sources and methods]

Today, the fortunes of human capital theory seem to have peaked. Like eugenics before it, will human capital theory soon fall into disrepute? Or are we headed for a third wave of human-capital propaganda? Hard to say. But what is scary is that eugenics collapsed not from any scientific reckoning, but because of a genocide. Will human capital theory collapse only when we plumb the depths of despotism? I don’t want to find out.

Fiction over fact

As a scientist, I’m fascinated by the human ability to delude ourselves — to choose convenient fiction over inconvenient fact. On that front, the collapse of eugenics (Fig. 1) appears to be a victory. But it is only a partial one. Eugenics collapsed for ethical reasons (it produced a genocide). Yet the scientific reasons why eugenics is wrong remain obscure.

We can see the scientific flaws by returning to William Muir’s chicken experiment. I’ve already told you about his psychopathic chickens, created by breeding the most productive hens. But I haven’t told you about his alternative trial. In it, he bred the most productive group of chickens. The result was an astonishing increase in egg-laying productivity.

The reason this group selection worked is that chickens are social animals. That means productivity is influenced by the social environment. By selecting productive groups, Muir selected for egg-laying ability, but also for sociality. The resulting social hens flourished together.

Something similar holds true for humans. The abilities of individuals cannot be separated from the social environment in which they occur. For this reason, any selective breeding based on individual traits is likely to have unintended consequences. If Muir’s chicken experiment is any indication, breeding übermensch wouldn’t create an uber-productive society. It would create a psychopathic one.

The reason comes down to the unit of selection. As social animals, humans have been strongly shaped by the selection of groups. This group selection has tended to suppress selfish tendencies that are otherwise beneficial for individuals.

Back to eugenics. Yes, eugenics has collapsed into disrepute. And yet the reasons why it is scientifically flawed remain obscure. Today, papers containing the word ‘eugenic’ in their title still outnumber those containing the word ‘group selection’ or ‘multilevel selection’. No, these modern eugenics papers are not advocating eugenics … they are investigating its history. Still, they appear not to be discussing a key scientific flaw in eugenics theory.

Figure 5: Eugenics is now obscure … but so are its scientific alternatives. I’ve plotted here the relative frequency of papers containing the word ‘eugenic’, ‘group selection’, or ‘multilevel selection’ in their title. Data covers the years 2000–2020. Note that the vertical axis uses a log scale. [Sources and methods]

Now to human capital theory. If, in the future, human capital theory falls into disrepute, my guess is that its scientific flaws will remain obscure. Let’s review these flaws.

Human capital theory supposes that income stems from productivity, and that this productivity is an isolated trait of the individual. This thinking, when taken to the extreme, is ludicrous. It implies that an Egyptian Pharaoh was thousands of times more productive than his slaves. Moreover, because this productivity was embodied in the Pharaoh, he could do away with his slaves and still retain his wealth. It gets worse. According to the logic of human capital theory, the Pharaoh’s slaves were actually a burden on the kingdom’s per capita productivity. If the Pharaoh exterminated them, per capita productivity would skyrocket.5

Idiocy.

The reality is that the Pharaoh owed his wealth to his tremendous power. He sat atop a massive hierarchy — an army of slaves who answered his beck and call. Do away with the slave army and the Pharaoh’s wealth would vanish.

When applied to a feudal society, we recognize that human-capital logic is bullshit. But when applied to our own society — as economists do everyday — it passes for ‘science’. Yet reality remains the same. Today (as ever) wealth and income stem from power.

There are a variety of theories that acknowledge the realities of power. Jonathan Nitzan and Shimshon Bichler’s theory of ‘capital as power’ is one. My own investigation of how income relates to hierarchical rank is another. (Read about it here). The truth, though, is that these theories are flies on the human-capital elephant. As Figure 6 shows, scientific articles with ‘human capital’ in the title outnumber those with ‘capital as power’ or ‘hierarchical rank’ by a factor of 100.

Figure 6: Flies on the human-capital elephant. I’ve plotted here the relative frequency of scientific papers containing the words ‘capital as power’, ‘hierarchical rank’ or ‘human capital’ in their title. Data covers the years 2000–2020. Note that the vertical axis uses a log scale. [Sources and methods]

In the future, human capital theory (like eugenics before it) may fall into disrepute. In that case, the number of human-capital papers will surely shrink. But will theories that acknowledge the realities of power become wildly popular? My guess is no.

Again, we can take a cue from the fall of eugenics. Eugenics is scientifically flawed because it conceives of traits as residing in the individual, not their social environment. Yet when eugenics collapsed, the theory of group selection (which focuses on the social environment) did not become wildly popular. Why? A big reason is ideological. Like economics, biology has been seduced by methodological individualism — the dogmatic focus on traits of individuals.

When it comes to human capital theory, the problem is even worse. Here, when we expose the realities of power (a social trait), we undermine the legitimacy of the social order. That’s a dangerous business. It can be done safely in obscurity. But if the realities (and injustices) of power become widely known, that means the social order has been put into question. That’s good … if it leads to a more just society. But often, widespread discontent leads to reactionary repression.

If human capital theory someday becomes the fly on the power-theory-of-income elephant, it would signal not only a scientific revolution, but also a social one. I doubt I’ll live to see it happen. And if I do, I have no idea what type of society would emerge from the other side.

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Sources and methods

As my sample of scientific papers, I’ve used metadata from the Sci-Hub database (about 80 million papers). You can download the metadata from Library Genesis. The raw data comes as an SQL database dump. If you’re interested in doing some analysis, I’ve built an R function that can parse the SQL data. Check it out at Github.

Notes

  1. In the United States in 2019, the top 1% of earners took home 18.7% of all income. The bottom 50% of earners, in contrast, took home just 13.5% of all income. (Data is from the World Inequality Database, pre-tax income share of US adults, equal splits.) If human capital theory is correct, this income indicates productivity. So the top 1% produced more than the bottom half of society. And the average member of the top 1% produced abut 70 times more than a member of the bottom 50%. (The math: 18.7% / 13.5% × 50 = 69.2). So an übermensch member of the top 1% produced more in an hour than a bottom-50 percenter did in a week. Or so human capital theory would have us believe.↩
  2. Actually, the seeds of abuse appear in the full title of Darwin’s opus. The main title (still used today) was On the Origin of Species by Means of Natural Selection. The subtitle, however, has fallen out of favor. Darwin called it the Preservation of Favoured Races in the Struggle for Life.↩
  3. You can go further and trace productivist sentiment back to the 17th-century philosopher John Locke, who argued that property comes from the exertion of (productive) labor.↩
  4. A human capital theorist would say that Becker, Mincer and Schultz’s output tapered with age because their human capital (much like a used car) depreciated with time.↩
  5. Imagine an economy consisting of the Pharaoh and 1000 slaves. In terms of living standard, imagine that the Pharaoh earns 1000 times the ‘income’ of the average slave. In human capital theory, that means the Pharaoh is 1000 times more productive than each slaves. With this ‘fact’ in hand, let’s do some productivity accounting. Let the productivity of a slave be 1. We find that national productivity per person is roughly double the productivity of a slave:

    \displaystyle \begin{aligned}  \text{productivity per capita} &= \frac{(1 \text{ Pharaoh} \times 1000) + (1000 \text{ slaves} \times 1)}{1001 \text{ people}}\\ \\  &\approx 2 \end{aligned}

    According to human capital theory, if the Pharaoh wants to increase national productivity, he should exterminate the slaves. Per capita productivity will then grow by a factor of 500:

    \displaystyle \begin{aligned}  \text{productivity per capita} &= \frac{1 \text{ Pharaoh} \times 1000}{1 \text{ person}} \\ \\  &= 1000 \end{aligned}

    Never mind that in reality, the Pharaoh’s wealth depends entirely on his army of slave labor. In human capital theory, reality is turned on its head — the slaves are a burden on the Pharaoh.↩

Further reading

Fix, B. (2018). The trouble with human capital theory. Real-World Economics Review, 86, 15–32.

Fix, B. (2019). Personal income and hierarchical power. Journal of Economic Issues, 53(4), 928–945.

Muir, W. M., & Wilson, D. S. (2016). When the strong outbreed the weak: An interview with William Muir. https://evolution-institute.org/when-the-strong-outbreed-the-weak-an-interview-with-william-muir/

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Understanding the Racial and Income Gap in COVID-19: Essential Workers

Published by Anonymous (not verified) on Wed, 13/01/2021 - 2:03am in

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inequality

Ruchi Avtar, Rajashri Chakrabarti, and Maxim Pinkovskiy

 Essential Workers

This is the fourth and final post in this series aimed at understanding the gap in COVID-19 intensity by race and by income. The previous three posts focused on the role of mediating variables—such as uninsurance rates, comorbidities, and health resource in the first post; public transportation, and home crowding in the second; and social distancing, pollution, and age composition in the third—in explaining the racial and income gap in the incidence of COVID-19. In this post, we now investigate the role of employment in essential services in explaining this gap.

Background

Ever since the pandemic hit and shelter-in-place and stay-at-home orders were issued, there has been a lot of discussion regarding essential services. Most states issued guidelines on which sectors and industries they consider “essential” despite pandemic-related closures. Following recent work, we use N.Y. Governor Andrew Cuomo’s list of essential industries for New York State as of March 22, 2020. These include retail, agriculture, construction, and health among others. We construct the proportion of essential workers to the total employment level in a county using the Quarterly Census of Employment and Wages (QCEW) published by the Bureau of Labor Statistics. We find that, on average, about 64 percent of the workforce in a county is classified as essential workers.

Essential Work and the COVID-19 Racial and Income Gap

For this measure to have explanatory power for the racial and income gap observed in COVID-19 incidence, it is important to look at the correlation with the low-income and majority-minority (MM) status of counties. We define low-income and MM counties in the same way as in the earlier posts in this series. We find that MM counties have a higher proportion of essential workers, and so do low-income counties, although this relationship is stronger for MM counties.

In order to get a better sense of how much the share of essential workers explains the racial and income gap in COVID-19 occurrence, we perform multivariate regression analysis similar to those in the earlier posts in this series. The bars in blue are the baseline results from regressing cases per thousand, as of December 15, on population density and MM, low-income and urbanicity indicators. The bars in gold report the most comprehensive regressions from the previous post, while the bars in light gray add the share of essential workers to this set of variables. The last bars in dark gray include the baseline set of variables that we started with in the first post of this series (low-income, MM, urbanicity, and population density) and augment this set by the share of essential workers.

 Essential Workers

The basic regressions in the first post showed that cases per thousand were much higher in low-income and MM counties. These differences were about 4.2 extra cases in low-income counties and 14 extra cases in MM counties, all statistically significant. Thus subsequent posts in the series looked at introducing numerous controls to explain this gap. So far, by controlling for comorbidities, uninsurance, ICU beds, public transit, home crowding, social distancing, pollution, and the fraction of elderly, we found that the differentials declined considerably, but remained statistically significant for both the income and racial gaps. These estimates are shown in the bars in gold.

Moving to the light gray bars, the estimates reported show the effect of controlling for the share of essential workers, while continuing to include the variables considered so far. For cases per thousand, the introduction of the share of essential workers actually dropped the level of statistical significance from 1 percent to 5 percent for the low-income gap. It also lowered the magnitude of the MM gap slightly. This seems to suggest that while this mediating variable has explanatory power for reported COVID-19 cases, it does not provide much additional information on the reasons behind the racial and income gap after the other variables we have discussed in the series have been accounted for. Compared to the original estimates, the inclusion of all potential factors reduces the low-income coefficient by 56 percent and the racial differential by 65 percent.

The last bars in dark gray report estimates where COVID cases are regressed only on the baseline characteristics and share of essential workers. This is done to assess the contribution of the share of essential workers on its own. Although the coefficients on share of essential workers are positive and statistically significant for cases, it is important to note that the low-income and racial differentials remain statistically significant. Compared to the baseline results from the first post, the only change is the slight reduction in magnitudes of all the differentials. This suggests that although the share of essential workers is important to explain COVID-19 incidence, it does not explain much of the racial and income gap on its own.

When looking at the association between COVID-19 cases and the share of essential workers conditional on the other determinants of COVID-19 cases investigated in the first three posts of the series, we find that counties with a higher share of essential workers also have higher COVID-19 intensity. As shown below, the coefficient on the share of essential workers in a county is positive and statistically significant. Thus, we find that counties with a higher share of essential workers are more vulnerable to COVID-19 effects. We also find that minority areas are more likely to have a higher share of essential workers. Yet, inclusion of this variable does not seem to explain the racial and income gap much more after a rich set of other covariates are accounted for.

 Essential Workers

Conclusion

To sum up, this series of posts investigated the potential determinants of the notable racial and income disparities in COVID-19 intensity across the United States. We used multivariate regression analysis to look at the ability of each factor to explain these disparities both on its own and in conjunction with other potential determinants of COVID-19 intensity. Our most notable finding is that while comorbidities play a role in explaining COVID-19 intensity gaps, factors amenable to policy interventions—most notably health insurance, but also home crowding and early social distancing in the pandemic—play key roles in both explaining COVID-19 intensity as well as the income and, to a lesser extent, the minority gap. While our analysis is not causal, our findings help focus attention on key determinants of spread, addressing which may help reduce the impact of COVID-19 on communities that are the hardest hit by the pandemic.

Ruchi Avtar is a senior research analyst in the Federal Reserve Bank of New York’s Research and Statistics Group.

Rajashri ChakrabartiRajashri Chakrabarti is a senior economist in the Bank’s Research and Statistics Group.

Maxim Pinkovskiy
Maxim Pinkovskiy is a senior economist in the Bank’s Research and Statistics Group.

How to cite this post:

Ruchi Avtar, Rajashri Chakrabarti, and Maxim Pinkovskiy, “Understanding the Racial and Income Gap in COVID-19: Essential Workers,” Federal Reserve Bank of New York Liberty Street Economics, January 12, 2021, https://libertystreeteconomics.newyorkfed.org/2021/01/understanding-the-....

Additional heterogeneity posts on Liberty Street Economics
Heterogeneity: A Multi-Part Research Series



Disclaimer

The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

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