Public ideas
A rising tide that lifts all boats is useless; boats need a safe harbour
Writing in Eureka Street – It’s time we ended politically induced poverty – John Falzon pulls apart the neoliberal adage that “a rising tide lifts all boats”, a metaphor commonly used to justify wide distributions in income and wealth.
The idea behind the metaphor is attributable to the Italian economic philosopher Wilfredo Pareto, who took the amoral low ground in claiming that there was no such thing as a just distribution of income: economics had to be objective and avoid the distraction of morality. His parsimonious concession to fairness was that any distribution of income or wealth can be acceptable just so long as no-one goes backward.
Pareto’s theory should be assigned to the same category as Lysenko’s theory of evolution – interesting in passing, but of no practical value. But it lies behind much of the economics taught in our universities. (Those who have studied economics may remember the rather ghastly construction known as the “Edgeworth Box”, based on Pareto’s model of the world – useful perhaps as an examination test of basic mathematics, but useless as a guide to public policy.)
In fact Falzon’s deconstruction demonstrates that some income support payments don’t even pass the Pareto test of no-one going backwards, because those payments have gone backwards in inflation-adjusted terms. His non-Pareto metaphor is a safe harbour:
A safe harbour means shaping our economic activity to serve the needs of people rather than pandering to the greed of profiteers. It means socially useful work. It means healing. It means respect, reverence and celebration, as well as space for the work of mourning and the collective work for liberation, under the guiding stars of struggle and hope.
Poverty from the kids’ perspective
Most studies of poverty look at material hardship by household, or from the perspective of particular householders, particularly single parents.
A study by Patrick Leman of the University of Waikato, published in The Conversation, looks at poverty from the perspective of children: Children have a basic understanding of poverty – a more equal society means talking to them about it.
As they grow up children’s understanding of fairness and inequality develop. Very young children start with a simple meritocratic notion that reward is related to effort. In time they come to understand how factors such as chance and inheritance play a role, and as they age they develop an understanding of the structural, political and economic causes of poverty. That understanding can also lead them to develop a mental model of a class-structured society.
That perception, while it helps children and young people understand how the world works, can be so strong that it displaces ideas of meritocracy. Also self-perceptions of class tend to be self-fulfilling. Such self-perceptions are more reliable predictors of physical and mental health inequalities later in life than objective measures of wealth, Leman writes.
Why do economists persist in using false theories?
That’s the title of an article by Asad Zaman of Pakistan’s International Islamic University, published in the Real-World Economics Review. He examines a number of mainstream economic theories, including basic ones such as the concept of scarcity, and Alfred Marshall’s theories of marginal product, concluding that they don’t align with reality. At the same time the discipline has dismissed theories that do work, most notably Keynes’ prescriptions for full employment.
Economics, he concludes, does not pass the tests of scientific rigour that should apply to all social and physical sciences. That is, theories that conflict with empirical evidence should be rejected. Economics hangs on to discredited theories however, because those theories serve the interests of the rich and powerful.