Sympathetic Stupid

Wednesday, August 17, 2005

Doug Henwood: After The New Economy

I've been inspired to read some economics by a nice conversation with a very intelligent economist. Well, that's probably a bit harsh, economist is practically pejorative these days, and she's actually a true generalist. But anyway.

After The New Economy is by Doug Henwood, the editor of the Left Business Observer. Yes, he's a journalist, but he writes clearly and gets close to the heart of some complex concepts. (Is there a difference in meaning between 'complex' and 'complicated'?) It's very US-centric, but it's good to read a left perspective on economics.

Written in 2003, the work discusses the aftermath of the 'New Economy' hype of the mid- to late-90s. I wasn't especially aware of this idea at the time, but I was aware of spiralling stock prices and the ensuing crash, based mainly around tech stocks. So, OK, this was just your standard boom-bust, mob psychology thing, there's not a lot you can say about this. This time it was based around computers and the Internet, but that's not special. It's happened before, it'll happen again.

So the pure New Economy speculation and analysis is actually the worst part of the book. But I still found it useful and interesting. It gives good explanations of a number of concepts which I didn't previously know a lot about, and quotes some very interesting figures.

For instance, productivity. Productivity is the ratio of output to input, if output increases or input decreases, your productivity has increased. Computers are supposed to allow everyone to be more productive. This means businesses can fire heaps of employees, or they can produce more for the same money.

Of course, this hasn't actually happened. He looks at some of the assertions made about this; "that 'advances in technology and dramatic increases in productivity' will render 'human labor far less important'". Which seems logical to me, but there's no evidence to support that claim. Jobs are still growing at a high rate as economies grow.

However. He talks about equality. Yes, there are plenty of jobs around, but they're being increasingly segregated into low-wage and high-wage, with little in the middle. He introduced me to the Gini Index which measures income equality. By his evidence, the US is one of the most unequal countries in the world (Australia is close behind).

Interesting figures show growth in incomes for each fifth of the income distribution since 1977. The poorest 20% are on 9% less than they were then; the richest 20% are on 43% more. The richest 1% are on 115% more! Or: 'had the growth in the top 1%'s share been distributed among the bottom 20%, their incomes would have more than doubled, from a paltry $8,800 to a respectable $20,000'.

He also discusses income equality amongst the sexes. It's nowhere near parity, but his figures show women now earn about 80% of the white male wage, up from 60% 25 years ago. Similar effects are shown with black and Hispanic workers. So it's not all bad.

There's also an arresting and disturbing discussion of poverty. Poverty hasn't dropped despite the apparently increasing affluence of US society. And there's a case that the poverty line should be much higher. The rate could justifiably be as high as 26%.

And then globally. 'The poorest tenth of Americans have average incomes higher than two-thirds of the world.' And: 'The ratio between the average income of the world's top 5% and world's bottom 5% increased from 78 to 1 in 1988 to 114 to 1 in 1993.'

These aren't enjoyable figures. Living in an unfeasibly wealthy first-world country like Australia, this is so far from the forefront of my everyday thoughts it's a scandal.

The chapters on globalization and finance are good, but it was the poverty and equality that really caught me.

It's an absorbing read. He mainly avoids getting bogged down in the numbers. It convinced me that I can continue to read on economics. And hopefully that I can actually act.