The Trickle Down

Inequality has become something of a meme in political discourse lately.  I suspect it’s something that Labour make a big deal out of while in opposition, and then go quiet about when they fail to make any meaningful difference to it while in government.  So, expect inequality to continue to make headlines for at least the next three years.
The New Zealand Herald, formerly content to leave leftist hand-wringing to The Listener, started the new year with a series of articles highlighting the gap between Auckland’s ‘haves’ and ‘have-nots’.  Which is to say, pointing out that those who work hard and live within their means are better off financially than those who breed and spend first and think about where the money comes from later.  As I noted last year, it is only financial inequality that is considered worth discussing.  The inequality in leisure or family time between someone who earns $150,000 per annum by working 80 to 100 hours a week and someone earning $40,000 and working 35 hours a week is apparently of no consequence.
I also made the point that the primary driver of the growth in income inequality was likely to be technological change.  Eric Crampton recently provided a link to a site run by the University of Chicago’s Booth School, which collects the opinions of a range of economists on a variety of issues and shows the level of agreement or disagreement about each.  It turns out I was right, but by no means original.
On the subject of inequality and technology, a common refrain one hears from the Left is that the benefits of economic growth haven’t been felt by those at the bottom (or, more broadly, those not at the top).  This perception is so widespread that one daren’t mention the ‘trickle down’ in polite company these days.  Their view is based on the limited growth of real wages, ie the growth of income over inflation, experienced by many even when the economy is strong.
What this world view utterly fails to account for, however, is the improvement in the quality of goods one is able to buy for those wages.  I recently encountered an old acquaintance for the first time since she left town a few years back.  She lives with her partner, who is a student and receives a student allowance.  She works part time.  She was upset that she was poor, and angry that John Key was only looking after his rich mates.  I wondered aloud whether she couldn’t work more hours.  Apparently this was not an option, because if she worked more then her partner wouldn’t get his student allowance.  I pointed out that, even if that were the case, they’d be better off if she worked full time and he worked part time while studying.  But they didn’t have time for that.  Before she left, however, she took time to tell me how much she liked her new iPhone 4S, a matching pair of which she and her boyfriend had recently purchased. 
Obviously, no-one 20 years ago, however wealthy, had an iPhone 4S, or any other cell phone for that matter.  They were invented, then made affordable as a result of free-market capitalism.  When cell phones were first invented, they were unaffordable to all but the very wealthy.  The very wealthy provided the demand which allowed them to be manufactured profitably, and, over time, technology improved, costs went down and cell phones (and now smartphones) have become ubiquitous.  The same is true of any number of pieces of technology now taken for granted by almost all, but which have only come into being during the period in which the Left argue that the economic system has conferred no benefits on the less well off.  If computers, decent coffee, smartphones, home entertainment systems, decent coffee, satellite television and decent coffee do not improve quality of life, then consumers are free not to purchase them.  These essentially luxury items are now within reach of pretty well all New Zealanders (including beneficiaries).  If that’s not the trickle down effect in action then I can’t imagine what is.  
This effect, however, is simply not captured in measures of average income, or real wage growth.  Looking at those figures, you could be persuaded that little has changed in the last 30 years for the average New Zealander.  This is clearly not the case.  I don’t expect everyone to be convinced by this, but the Left should bear it in mind when decrying the brutality of capitalism on blog sites hosted on computers connected to the Internet using their smart phone while sitting in a cafe sipping latte.

One comment on “The Trickle Down

  1. natarsha says:

    perhaps you friend, if indeed this is true would like to refute your comment?

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