Magazine article New Zealand Management

Economics: The Good, the Bad and the Ugly

Magazine article New Zealand Management

Economics: The Good, the Bad and the Ugly

Article excerpt

Byline: Bob Edlin

A study of trends in incomes, inequality and poverty conducted for the Ministry of Social Development last year showed income inequality had increased substantially from 1982 to 2004, but declined from 2004 to 2007, mostly thanks to the Working for Families programme. It remained much the same from 2007 to 2009, when the top 10 percent of the population received 25.7 percent of total disposable household income and (more notably) owned 52 percent of the country's wealth. Half the population, on the other hand, owned just seven percent of the wealth.

If the have-nots are aggrieved by these disparities, they would not have been mollified by the March-quarter labour cost index. Private sector ordinary time wage rates rose 0.4 percent in the March quarter and two percent in the March year. With public sector and overtime rates included, the annual increase was 1.9 percent. Wage increases therefore were lagging behind increases in the cost of living.

Some economists said people were better off than a year ago when tax cuts and lower mortgage rates were brought into calculations. But the workers' bosses obviously were even more better off, because a Business Herald survey among chief executives of the country's biggest listed firms and state-owned enterprises found they had received an average 14 percent pay rise in the 2010 financial year. Remuneration of the 47 chief executives investigated averaged $1.6 million.

A significantly greater concentration of wealth is to be found among a small elite in the United States, where New York Times columnist and economist Paul Krugman has looked back to what happened under Franklin Delano Roosevelt. Income gaps between rich and poor were narrowed through stronger unions, a strengthening of collective bargaining, wartime wage controls (imposing a floor to wages) and high tax rates on capital. These measures, he says, were followed by unprecedented income and output growth which persisted until the 1970s.

Krugman regards wide gaps as "bad for democracy" and links income inequalities to "the ugliness" of American politics. "You start to get a society in which the elite is just not living in the same material universe as the rest of the population. …

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