A new study by the Economic and Social Research Institute shows a significant drop in poverty levels experienced by "vulnerable groups" as a result of the Celtic Tiger boom in recent years but the gap between rich and poor continues to grow. If the focus continues to be on the unemployed, elderly, lone parents and other welfare categories a distorted picture emerges whereby anyone that doesn't fall into such groups is assumed to be reaping the full benefits of the economic good times. I would like to see a study that highlights what I suspect is the position of very many working people struggling to cope against a backdrop of poor social infrastructure and endemic job insecurity. A more balanced and nuanced picture might then emerge.
Most mainstream economists will probably argue that relative income inequality doesn't matter provided absolute income levels continue to rise. This is the perspective of "trickle down economics", or in Irish terms "the rising tide lifts all boats" position once enunciated by Seán Lemass. Some economists go further and will argue that trying to limit economic inequality has dangerous consequences as it will result in reducing both the incentive to work and the efficiency with which work is organized. Free market ideologues and neoclassical economists (they are practically synonymous) believe that riches are the best way of rewarding those who contribute most to prosperity and that state-provided welfare encourages idleness and moral torpor among the poor.
Such emotive language is rarely used by the practitioners of the dismal science. Instead they might talk about a "poverty-inequality trade-off" whereby rapid economic growth, particularly in developing economies, will bring down the incidence of absolute poverty and that therefore we do not need to worry about the coincidental by-product that is inequality. Is there any evidence to support such a view? The author of a recent World Bank Policy Research Working Paper finds no sign of a systematic trade-off between measures of absolute poverty and relative inequality and concludes that rising inequality is more likely to put the brakes on poverty reduction rather than facilitate it.
The economic claims of free market economists are often met by moral outrage. This might have a rallying effect on their opponents but, while ethical perspectives are necessary, they are far from sufficient. The debate over inequality involves both moral and empirical claims. Christopher Jencks, in an article "Does Inequality Matter?" published in Daedalus, Winter, 2002 (and available here) makes the point that because empirical claims are hard to assess, both sides tend to emphasise moral arguments. But, he adds
Treating inequality as a moral issue does not make the empirical questions go away, because the most common moral arguments for and against inequality rest on claims about its consequences. If these claims cannot be supported with evidence, sceptics will find the moral arguments unconvincing. If claims about consequences are actually wrong, the moral arguments are also wrong.
This is an absolutely essential point to grasp. Politically, it means challenging the notion that the free market world view is just "common sense". To do this effectively, economic arguments must be dealt with by counter economic arguments that are empirically grounded. We may be morally offended by the notion that growing inequality is an insignificant by-product of a dynamic free market economy but we will not advance the cause of social democracy by limiting ourselves to appeals to some nebulous concepts of fairness or social justice.
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