Marie Antoinette's neoliberalism

The story of the economic crisis in Europe, as in the Anglosphere, is actually simple at the root. Two pages into Maurizio Franzini’s article, Why Europe Needs a Policy on Inequality, the reader trips over this paragraph:

“The proportion of the European workforce with a labour compensation per hour (wages plus social contributions) declining in real terms was 16.5% in the years 1996-1999 and 33% in 2003-2006. Moreover, 48% of the workforce during 1996-1999 and 61% during 2003-2006 saw their labour compensation per hour growing, on average, less than their labour productivity per hour. In the latter period, 23% of the workforce faced declining compensation with increasing labour productivity in their industry.”

There is a specter haunting the developed countries – the specter of the increase of exploitation. Wages are continuing to fall below the increase in productivity, and this means (sound the trumpets, please): you get one of those garden variety shortfalls of demand, and oversupply of goods, that so puzzles your elite capitalist type. He scratches his head, and then he dreams up his solution to the problem: why not reward the rich even more money, and take away the package of compensation (in the form of public goods) from the rest of the population? Somehow, a solution in which the elites engross even more of the collective wealth goes over well with the elites. They start writing grave articles about it. And sometimes they just throw together a mishmash of contradictions and claim that it is a program for the ages – thus, the current fad for expansionary contraction, which, like virgin births and perpetual motion machines, is proof that the verbal is triumphantly infinite, while the material is sadly limited to what can actually happen.

The poetic origin of the expansionary contraction comes from that mythical phrase of Marie Antoinette’s, let them eat cake. The EU bureaucrats have iced that phrase nicely with econo-speak, but strip off the icing and it’s the same old cake.

Here’s another passage from Franzini that should poke a hole in the American myth of Europe as a land of socialist equality:

“According to one study inequality in the EU is quite high but lower than in the USA: the Gini index is (with reference to data around 2000) 0.33 in the EU25, while it
was 0.37 in USA.

A more recent estimate based on a different methodology and on more recent data (2005) concludes that inequality in Europe is significantly higher, and not uch different from that of the USA: the EU-wide Gini coefficient is 0.369, not very far from the US level of

When people refer to Gini coefficients, it loses the great mass of people. But it actually does give us a way of thinking back through our recent cycle of exploitation. And interesting experiment in this vein was made by Stephen Adair, a professor in Connecticut. He took the Census’s Gini coefficient, that is, the measure of inequality, and he adjusted it back to its former levels in Connecticut and played the tape of inequality, so to speak, forward.

First, some back data: “Between 1970 and 2010, every state in the U.S. experienced an increase in inequality, but non greater than Connecticut, which went from the 36th most unequal state to the 2nd most unequal.”

Adair keeps the size of the income pool the same in one scenario, but adjusts the Gini coefficient down to the 1970 level. In Scenario b, he projects a neo-liberal distribution pattern by growing the size of the income pool, and retaining current levels of inequality. This is what he gets in Scenario A:

“…. a Connecticut in which the overall size of the income pool is the same, while hundreds of thousands of people experience significant upward mobility. This upward mobility is “achieved” by lowering the average value of those making over $200,000 from $387,650 to $235,000. It is not mathematically possible to keep the average household income the same and reduce the Gini to .337 without lowering this value. Scenario A illustrates a zero-sum game in which a decline in the incomes of the richest 8 percent “pay” for upward mobility for others.”

Here’s the neo-liberal scenario:

”Scenario B … maintains the Gini coefficient of 2010, but imagines a 10 percent increase in income levels by raising the household mean income to just over $102,290. Given the current distribution nearly half of the new income went to the top 10 percent, such the average income of households making over $200,000 went from $387,650 to $440,400.

Scenario B yields small increases in the number of households in each category above $45,000 and some small decreases in the lower income categories. There are, however, significantly greater reductions in the low income categories in Scenario A than in B, and greater increases in most of the upper income categories. .

Well over ninety percent of households in Connecticut would be more likely to experience an improved economic condition by returning to the rates of inequality in 1970 with no economic growth than they would with a 10 percent overall increase in the income pool with no change in the degree of inequality.”

We are drifting towards the wreck of the plutocracy. Scenario B is not going to happen – rather, we are going to have an overall shrinkage of the income pool, and an overall increase in inequality, given current tendencies. It is over, in the EU and the U.S., in the UK and Canada, with the fiction that we can join together a gilded age economy and a New Deal social welfare system. The plutocrats are fighting for the former, and nobody is fighting for the latter.