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November 03rd 2014 print

Peter Smith

Inequality, Murdoch-style

Flourishing economies reduce inequality. More people are in work. Businesses are forced to pay higher wages to attract the labour that they need. But inequality, whether it is rising or falling, is simply a symptom. It tends to rise when economies are doing badly and fall when they are doing well

rich poorRupert Murdoch caused quite a stir when he lamented growing inequality at a dinner speech to G20 participants in Washington in October. Some on the left suffered temporary cognitive dissonance. Chris Bowen, as one example, was reported to have welcomed Mr Murdoch’s remarks; obviously having not read them.

Ah, there would be much joy on the left if ever a repentant right-winger – with his or her full faculties of course – saw the light on the hill. Alas, they wait and wait; in the meantime pitifully holding up Malcolm Fraser as a talisman.

No-one was fooled by Murdoch for too long. Alan Kohler in The Australian was inspired to attribute the ‘roots of the imbalance’ to President Reagan and his supply-side economics. How long a bow are you prepared to draw? A very long one, obviously, if it means ensnaring Reagan.

Warwick Smith, a self-described ‘ecological economist’, writing in The Guardian, applauded the attention Murdoch drew to inequality, but thought his remedies were quite wrong. What is an ecological economist? Well, I wasn’t at all sure. But Mr Smith provided a link which allowed me to understand that ecological economics “shares many of its perspectives with feminist economics, including focus on sustainability, nature, justice and care values”.

There you have it.It left me wondering what ‘masculinist’ economics would be all about. Slugs and snails and puppy dogs’ tails came to mind.

Bernard Keane and Glenn Dyer were more forthright at Crikey!. “The wisdom Rupert Murdoch offered to G20 finance ministers is simply more of the self-interest that has given us the inequality he rails against,” they wrote.

To the left, inequality is the second great moral crisis of our time. One risks destroying the planet; the other the social fabric that glues us together. Doom awaits us if we don’t find the answers. And, wouldn’t you know it, the answers lie in more government!

The fact that both crises share the attribute of being without substance should give us no comfort. Those on the left know how to prolong a myth if it works in their interests. It took many years of human misery and poverty, forced labour and executions before the left elite in the West gave up on promoting the Soviet Union. And, while the myths live, they unwaveringly give rise to bad policy. Think of the welfare state.

In the case of tackling the ‘inequality crisis’, bad policy takes the form of more regulation and more progressive and discriminatory taxation. All of which, in depressing business activity, lead to more inequality not less. And the answer will be? You guessed it; even more regulation and taxation.

Murdoch’s main point was well-made. The burden of regulation and corporate taxes should be reduced to allow businesses and economies to flourish. In a sense, his message became garbled when he then drew a line between quantitative easing, rising asset prices and growing inequality.

Sure, quantitative easing – together with very low interest rates – has disproportionately benefited those with large asset holdings. And, if economies were flourishing there would be no need of quantitative easing. But that tends to put inequality at the centre of consideration whereas, in itself, it is an irrelevant policy consideration.

Economic policy should be directed primarily to encouraging strong growth in well-paid private sector jobs. What else is there that’s nearly as important? Nothing is the answer.

Flourishing economies reduce inequality. More people are in work. Businesses are forced to pay higher wages to attract the labour that they need. But inequality, whether it is rising or falling, is simply a symptom. It tends to rise when economies are doing badly and fall when they are doing well.

Of course, technological change can be disruptive and lead to unemployment and rising inequality. Education and retraining then have a greater role to play. But the main answer remains the same. That is to free the private sector from restrictions and burdens that otherwise impede growth.

Measuring the ups and downs of inequality might have some passing interest for economic historians. It has no role in guiding policy. Inevitably, when it is dwelt on by economists on the left – for example, Thomas Piketty, Joseph Stiglitz, Paul Krugman and our own federal Labor parliamentarian Andrew Leigh – it leads to proposals for palliative care: more regulation, heavier taxation (e.g., a global wealth tax favoured by Piketty) and income redistribution.

Some palliative care simply keeps the patient comfortable, this one produces death throes. The economists prescribing it should be locked away in universities where they can chatter with their left-wing academic mates and do no harm. Unfortunately, they are out and about and intent on influencing governments. They have good intentions. That makes them no less misguided; and particularly dangerous to working men and women.

 

Peter Smith, a frequent Quadrant Online contributor, is the author of Bad Economics