Memo To Larry Summers; Middle Class Stagnation Is The Outcome Of The Most Successful Economic Policy Ever
Larry Summers has one of those prelude to Davos OpEds out today. The basic claim is that middle class stagnation is the largest economic problem we face and one about which something must be done. It’s possible, as I do, to argue with the premise, the analysis and the conclusion. As far as I am concerned the major economic problem we face today is that billions of people on the planet are dirt poor, still stuck in peasant destitution. Further, that the rich world middle class stagnation that is being complained about isn’t in fact a problem at all. It’s the result of the most successful economic policy anyone has ever implemented anywhere. And far from us having to do something about it we should carry on exactly as we are, following exactly that most successful economic policy ever, that of neoliberal globalisation.
.. Well, my argument would be and is that that middle class stagnation is actually because of the success we’re having in meeting that moral imperative to help the world’s poor.
.. Third, if it is to benefit the middle class, prosperity must be inclusive and in the current environment this is far from assured. If the US had the same income distribution it had in 1979, the bottom 80 per cent of the population would have $1tn — or $11,000 per family — more. The top 1 per cent $1tn — or $750,000 — less. There is little prospect for maintaining international integration and co-operation if it continues to be seen as leading to local disintegration while benefiting a mobile global elite.
If I’m honest about it I have to say that I just don’t care. Those global poor are much more important.
.. It is there — between the 50th and 60th percentile of global income distribution, which in 2008 included people with annual after-tax per capita incomes between 1,200 and 1,800 international dollars — that we find some 200 million Chinese and 90 million Indians, as well as about 30 million each in Indonesia, Brazil, Egypt and Mexico. These 400 million people are among the biggest gainers in the global income distribution.
.. We set out to make the global poor richer and it was always obvious that this would be somewhat at the expense of the rich world working classes. We have made those global poor richer and it has been somewhat at the expense of those rich world working class people. Well?
Me, I’d say an unfortunate casualty of the most successful economic policy ever. And we certainly don’t want to reverse this because, as Summers says, aiding those global poor really is an imperative.