Gordon Brown and Economic Inequality
Many things are said and written during an economic crisis, especially one that has been going on for five years and counting. The Federal Reserve easing up too soon/not soon enough on the stimulus (whether quantitatively eased or not), inequality rising/shrinking, the national debt too great/not that big a deal, opinions all regularly espoused in the media these days, both for and against with equal aplomb.
But when a former British prime minister and chancellor of the Exchequer whose light-touch regulation policies, international winner-take-all preferential incentives to his own City financial sector, and double-digit growth soothsaying in of all places the joint houses of the U.S. Congress – only the fifth British prime minister to ever speak there – becomes a forecaster of doom for those selfsame policies, one wonders now if anything goes.
Gordon Brown, chancellor of the Exchequer for ten years prior to the crisis and prime minister at its ignominious beginning (deemed here to be September 15, 2008, the day Lehman Brothers filed for Chapter 11 bankruptcy protection with over $600 billion in assets), seems content to wash his hands of his own culpability, stating in a New York Times Op-Ed piece (Dec 19) that “Political expediency, a failure to think and act globally, and a lack of courage to take on vested interests are pushing us inexorably toward the next crash.” Strong words indeed, which had he heeded ten years ago when he was pulling his own economic levers we might not be in the fine Laurel-and-Hardy mess we’re in now.
It almost beggars belief and gives credence to the old barb about 1,000 economists standing in a line yet none of them facing in the same direction. Or worse, the Cheshire Cat smiling without face from a nonsense land where up is down and left is right. Does Mr. Brown want to be recognized now as a true Labourite rather than the banker-friendly, City-building, politically expedient he was/is? It is a noble cause and if true to be welcomed. Hopefully, it’s not too little too late.
What about his and other leaders’ behaviour at the beginning of the crisis – does it stand up to his same criticism now? Back then it was variously described as a multiple-sigma, once-in-a-millennium, unheard of event, a bit of moral hazard, and even “shocked disbelief” as proffered by former Fed chairman Alan Greenspan to the House Committee on Oversight and Government Reform in 2009, who stated, “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief.” It’s as if all the best minds of a generation had been group sucker punched.
Does Gordon Brown really mean to suggest that the same wrong Group Think still exists today? When we have learned from our mistakes, about positive feedback loops and thick-walled (asset-backed) and thin-walled (bank-leveraged debt) Bubble Economics?
President Obama’s Treasury Secretary Tim Geithner certainly had his reservations about Mr. Brown’s global strategies, noting how his light-touch approach “was designed consciously to pull financial activity away from New York and Frankfurt and Paris to London. That was a deeply costly strategy for financial regulation.” Indeed, as in any competitive game, what started as a light touch in one place becomes a light touch everywhere, as banks and nations compete in the most dangerous “winner-take-all” game of global one-upmanship. Then it was London. Now, it seems, everyone is looking to Beijing for new strategies, new ways to gain advantage.
As for the figures to back up the claims, all are easy to work out from the simplest of data – back-of-the-envelope calculations if you will – ever important in an increasingly number-filled world, one in which we are told Americans are falling behind more and more every year. The math gets to the core of the problems facing us about vested interests, global competition, and expediency, Mr. Brown’s new found bywords for our current course, which as he eloquently noted is “stumbling toward the next crash.” Again.
In 2010, the top 100 Forbes income earners made almost three-quarters of a trillion dollars, an amount equal to the entire country of Indonesia earning an average world income of $6,300. The Forbes 100 income works out to $7.75 billion per capita. The population of Indonesia is just over 123 million. That’s a global inequality unheard of. Ever.
Furthermore, such inequalities have been getting worse, much worse since the relaxed financial regulation of the 1980s, the likes of which Paul Krugman has been heralding for decades, yet seemingly unheard of by the George Browns, David Camerons, George Bushes, and Barack Obamas when in power. It’s easy to heckle from the crowd; obviously much harder to implement good policy from on stage.
On an international scale, total world GDP increased almost fourfold over 40 years from 1960 to 2000 and average world GNP per capita doubled from roughly $3,000 to $6,000, while in the same period the ten poorest nations share of the pot dropped from 0.84 to 0.21 percent, a staggering statistic that dramatically highlights increasing world poverty. Apparently, the world hasn’t been flattening out with globalization as business-minded leaders want us to think. It’s been expanding unequally. Then and now.
In the United States, in a 40-year span to 2010, household income distribution to the highest quintile increased from 43 to over 50 percent. In the U.K., the unequal slicing tots up at 1 percent owning more than two-thirds. Not exactly the “1 percent 99 percent” rallying cry of Occupy movements around the world, but there’s no denying that the rich are getting richer. According to Gordon Brown, give it time for vested interests to complete the conversion.
To say now that vested interests are to blame is rich indeed. Crises are always about vested interests. Relatively speaking, at least. Another simple calculation might tell us why, which points to the real disconnect. Between people and power. Between economics and living.
In the United States, 40 percent of Congress is composed of lawyers and 48 percent millionaires. Yet in the general population, only .3 and 3 percent are so represented. It should come as no surprise then that there are lots of well-crafted laws for the wealth-minded. Or indeed the wealth-obsessed. In fact, when some of them make secret stock deals based on insider information with impunity, the rest of us don’t stand a chance.
Doing the math is imperative, especially if American students’ skills are declining as a recent O.E.C.D. study has showed (24th place globally). And, indeed, it’s easy to trot out the problems, but we should face up to the truths about the vested interests pulling the strings on our economies. Then and now.
We need to be told of coming troubles, especially when politicians are mired in populist Bubble Economics. I’m glad Gordon Brown is standing up and being counted. I applaud his courage. I only wish he had done it ten years ago.
JOHN K. WHITE, an adjunct lecturer in the School of Physics, University College Dublin, and author of Do The Math!: On Growth, Greed, and Strategic Thinking (Sage, 2013).