Home > Economics - General > The end of the cash nexus?

The end of the cash nexus?

March 5th, 2009

Tyler Cowen has a short post which covers a number of themes I’ve been going on about for ages, though never with a fully satisfactory analysis. He starts by pointing to work by Michael Mandel suggesting that much of the measured productivity growth in the US has been bogus (see also Matt Yglesias on this). I agree, particularly as regards the financial sector.

More interestingly, Cowen goes on to note that

there was some productivity growth but much of it fell outside of the usual cash and revenue-generating nexus. Maybe you will live until 83 rather than 81.5 and your pain reliever will work better. In the meantime you will read blogs and gaze upon beautiful people using your Facebook account. Those are gains to consumer surplus, but they don’t prop up the revenue-generating sectors of the economy as one might have expected.

I agree and I think the implications are profound, if still hard to predict with any accuracy. There has been a huge shift in the location of innovation, with much of it either deriving from, or dependent on, public goods produced outside the market and government sectors, which may be referred to as social production.

Some suggestions, not fully argued, over the fold

*If monetary returns are weakly, or even negatively correlated with the value of social production, there’s no reason to expect capital markets to do a good job in allocating resources to supporting innovation. (This point seems rather less controversial than when I made it in 2006.)

* As a corollary, it seems unlikely that large inequalities in income are beneficial to anyone except the recipients of high incomes (this issue is being discussed, in a much more abstract setting, at Crooked Timber)

* If improvements in welfare are increasingly independent of the market, it would make sense to shift resources out of market production, for example by reducing working hours. The financial crisis seems certain to produce at least a temporary drop in average hours, but the experience of the Depression and the Japanese slowdown of the 1990s suggest that the effect may be permanent

* Creativity, broadly defined, seems likely to become more important, while markets, particularly financial markets, become less so. Firms that want to survive and prosper will have to behave quite differently from the way the did in the past. Google is an obvious example of a firm that is trying to do this, if not always succeeding.

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  1. Ikonoclast
    March 5th, 2009 at 22:22 | #1

    Steve Keen continues to hammer the line that this crash is the big one. I, for one, find his graphs and numbers convincing. See his site for his recent posts.

    Keen says;

    “Rudd’s stimulus is a whopping $42 billion–a big number. But our private debt is now over $2 trillion. If the private sector de-levers by as little as 5% of its current debt level, that will withdraw $100 billion from spending. In the new economic Rock vs Scissors game, Deleveraging trumps Government Stimulus every time.

    This is why Japan is still mired in a Depression, 19 years after its bubble economy burst. You can’t solve a problem caused by too much debt by going into more debt. Ultimately, the only solution is to reduce debt.”

    JQ, your recent posts don’t seem to have the financial crisis itself front and centre anymore. You seem to be latching on to peripheral issues.

    Do you find Keen’s recent work convincing or do you have major reservations about his analysis, predictions and prescriptions?

    I hope I’ve asked an uncomfortable question. That’s the job of an “Ikonoclast”.

  2. observa
    March 5th, 2009 at 23:38 | #2

    A reminder that comments linking to incisive Atimes analyses of this and that will be deleted. I was just about to take you off moderation when they started reappearing – JQ

  3. BilB
    March 6th, 2009 at 04:30 | #3

    This is a huge subject, JQ, which goes to the core of how future economies will work in a world where materiality is scaled back but productivity increases. Doing more with less, the art of survival.

  4. paul walter
    March 6th, 2009 at 05:32 | #4

    Reminds of Costello on teev tonight, attacking the stimulus package because he thinks it hasn’t showed up as soft landing mechanism in the figures inthe way he says he’d like. But if people are paying off debt, does it not also help companies by reducing their debts,keeping them viable as bills are paid off?
    I know this is not what JQ’s thread is about, so much as immanent value(s). Seems more about conceiving and reconceiving of people and society in a way more attuned to possibility and less of limiting and “othering” for erroneous motives derived of lack of self understanding. Therefore social reproduction finally to a point, in reconceiving questions like “what is government” and “what is society” what are economies and what are “communities”.
    Never more reminded of my own limitations as when Icome up against something like this. Like the(first)Socrates, am forced to admit, “all I know is that I know nothing”.
    Suffer the little children, prof Q…

  5. Hermit
    March 6th, 2009 at 05:32 | #5

    If blogs and internet news sound the death knell of newspapers then surely that segment of GDP must decline. Fewer trees, printing presses and newsagents yet qualitatively little has been lost. It’s a rare example of a satisfactory product replacement with lower input unlike say heavy and gadget laden new model cars.

    On the economy I also think this time it’s different and there will be no going back to the halcyon days. Therefore much of the spending that tries to revive the past will futile.

  6. Ernestine Gross
    March 6th, 2009 at 08:24 | #6

    “Rudd’s stimulus is a whopping $42 billion–a big number. But our private debt is now over $2 trillion. If the private sector de-levers by as little as 5% of its current debt level, that will withdraw $100 billion from spending. In the new economic Rock vs Scissors game, Deleveraging trumps Government Stimulus every time.

    This is why Japan is still mired in a Depression, 19 years after its bubble economy burst. You can’t solve a problem caused by too much debt by going into more debt. Ultimately, the only solution is to reduce debt.”

    1. IMO, the above described problem is due to thinking being trapped in macro-economic models (Keynesian or Monetarist, with or without Hymer’s financial instability hypothesis). The reference to the ‘stimulus program’ is an example of this thinking. “…withdraw $100 billion from spending” is another one. (The fact that this ‘withdrawal from spending’ has helped to improve the international trade account – a good thing – is not mentioned.)

    2. I am not fond of these macro-economic models because, IMHO, they confuse commerce (and the utility function of a Treasurer) with economics, concerned with the material welfare of humans under alternative institutional environments (eg theoretical models of complete markets, incomplete markets, partially segmented markets, centrally planned economies, mixed economies, hunters and gatherers, together with empirical and institutional detail).

    3. The data collection system, which developed since Pacioli’s double entry book-keeping system in the late 15th century for commercial enterprises and its macro-economic cousin, the national accounts, does not allow the disentanglement of the layers of debt, generated via complex securities issued by the private sector but denominated in national currency units, such that deleveraging (removing the monetary illusion of value and ‘productivity’) would be a policy option.

    4. Even if it turns out that someone has found a conceptual framework that allows deleveraging to become a policy option, it will surely take time to implement. Furthermore, the resistance to implementing a deleveraging policy may be expected to be strong, particularly among those who advocate letting large banks go bankrupt privately.

    5. It seems to me that a ‘stimulus package’ should be viewed as a measure to take off the sharp edges of the private deliveraging process, which is going on, rather than a measure to “restore spending”. Moreover, as I have mentioned previously, giving some cash to people on incomes below a specified cap is IMO a clever and ‘market oriented’ approach in the sense that it allows people to decide how to spend the tax return .

    6. I would prefer if everybody would stop talking about ‘the economy’, defined as a macro-economic model, because in my experience this talk in the public arena and the associated numbers and the associated terminology (recession, ‘the economy shrinks’) enters the investment planning models used by business people as data.

    7. JQ is the second Professor from whom I learned about the importance of patients – step by step, examining element by element in a systematic fashion. Interestingly, this teaching took place outside a formal learning environment.

  7. Ikonoclast
    March 6th, 2009 at 10:08 | #7

    Surely, macro-economic modelling is an attempt to develop a grand strategy theory of capital or to put it another way, a unified theory.

    If we give up attempting to develop a unified theory we might as well continue as we have done for the last 30 years; i.e. let the market have its head and continue to suffer horrendous boom and bust cycles.

    The best way to get a handle on any big system is to look for basic Laws first and then work our way into complexity and minutae. Some of Keen’s graphs look to me like they are expressing pretty basic laws. The correlation coefficients look convincing too.

  8. Chris Warren
    March 6th, 2009 at 10:16 | #8

    I am just going to make the obvious point.

    By definition, capitalist economic relationships are contradictory and at root its valuations of money, wages, output, and risk are all profoundly bogus.

    Now that the Bank Of England is about to print money (in the form of Gilts), this contradiction will become more obvious.

    The real blame has to be placed with economists starting with John Bates Clark and the undemocratic nature of 19th and 20th century universities. These institutions (plus undemocratic parliaments) were the ideological and political factories of Western colonialism, empire building, slavery, imperialism, and exploitative debt-based capitalism.

    Today’s crisis can be traced right back to the 18th century.

  9. Ikonoclast
    March 6th, 2009 at 10:31 | #9

    I might add that it is clear that our current system allows an excessive creation of debt and money. The current asset inflation bubble (boom and bust) is a case in point.

    The point is that the Reserve Bank and the Government should have an eye to controlling not only inflation and unemployment but also the excessive creation of private debt.

    One problem, as a case in point, in this area is the total unwillingness of any government to measure inflation or unemployment honestly. Accurate economic policy can only be based on accurate economic measurements (with honest allowance and statement of measurement error). Where policy is based on false measurements it is bound to be false policy.

    Our official inflation rate is a carefully rigged, re-rigged and wholely mendacious measure. The basket of goods is skewed away from any likeness to a real consumer’s “basket” and towards that which will understate inflation. Asset inflation is all but ignored as are mortgage costs when interest rates go up. I recall instance for certain in the series where this was the case and then mortgage interest costs were added back into the measure when they (the mortgage interest costs) started going back down.

    The unemployment statistics are also false. An academic seeking to model the economy over time and to find its Laws would first have to develop more accurate and defensible measures for inflation, unemployment and other measures. He/she would then have to research and calculate these truer figures over a long time series (an immense task). Only then could they begin analysing the data in attempt to find the system’s laws of operation.

  10. Ikonoclast
    March 6th, 2009 at 10:41 | #10

    Chris, you are right but where do we stop? One could say today’s crisis can be traced back to the point where homo sapiens took the first step beyond a strict hunter-gatherer existence.

    However, the point is Capitalism is going to collapse not so much because it burnt up every other human relation but because it burnt up the environment. Soviet-style Communism worshipped industrialisation and industrial/military power as much as capitalism did so no relief there.

  11. Ernestine Gross
    March 6th, 2009 at 10:56 | #11

    I prefer a unifying theoretical approach which simultaneously describes the individual agents and the aggregate outcome, such that the assumptions as well as the predictions or implications are amenable to empirical examination. This existing theoretical methodology is known to me as analytical economics. I find it useful to gain insights into the nature of empirically observable problems.

    Looking for “basic Laws” may work well in natural science as long as the system can be treated as exogenous to human behaviour. By contrast, economic data is dependent on the institutional environment, which is man-made* (philosophical ideas and legal framework). Hence regularities in economic data are dependent on the institutional environment.

    While it is the case that most of the existing theoretical models in analytical economics have their philosophical origin in Adam Smith, Roemer’s work is an example of an application of the methodology to somewhat different ideas.

    Having said all this, Steve Keen’s work is surely sufficient to show that there is a non-trivial problem and carrying on with the ideology of the past 30 years isn’t a solution. Incidentally, the said analytical economics does not underpin the micro-economic reform of the past 30 years.

    *includes women.

  12. Chris Warren
    March 6th, 2009 at 12:13 | #12

    Keen’s work needs to be debunked. Just pointing to debt and bubbles is meaningless.

    His understanding of economic history and theory is frankly excentric.

    OECD economists have always known about what they term “macroeconomic imbalances” by which they mean that it is the total effect of current account deficits, net lending of government, unemployment and inflation, to collectivly worsen decade by decade.

    This combination has now exploded.

    Some time ago (in the 1990’s?) the IMF rather wisely, reviewed the threat of global depression and their report was prescient.

    Any explanation of today’s crisis based on some trends sicne either the second world War, or the sixties or some adjustment in the 1970’s etc totally miss the point. Keen is in this boat.

    It all goes back to Adam Smith and David Ricardo.

  13. Ernestine Gross
    March 6th, 2009 at 13:11 | #13

    Providing data which points to a debt driven bubble is not meaningless. Making predictions is a bit more iffy.

    I should hope OECD economists have done a bit better than what you say.

    Do you have OECD or IMF data which allows the tracing of the layers of debt involving financial securities with non-linear pay-off functions?

    Macro-economic imbalances, as described by you, is just another way of saying the monetarist world view is correct. It is not.

  14. Ernestine Gross
    March 6th, 2009 at 13:28 | #14

    Regarding the topic of the thread.

    JQ, I just read the article in the Fin Review. What a breath of fresh air. Could we be so lucky to live through the simultaneous removal of the proverbial Wall Street shackles and those of New Public Sector Management?

  15. Chris Warren
    March 6th, 2009 at 13:37 | #15


    I will rephrase…

    A specific debt driven bubble is meaningless if the problem is a long-run structural problem.

    You may like to view the New York Time’s excellent Flash presentation – particularly the graph of debt from 1920’s.


    This indicates the bubble is NOT the problem – it is the long-term trend.

    By wailing about the mouse in the corner (Keen’s debt issue) we ignore the elephant in the room (long-term structural contradictions).

    It may be better if you use data concepts that are used by available data warehouses.

  16. Michael of Summer Hill
    March 6th, 2009 at 13:44 | #16

    John , if I may reply to paul walter by saying the ultimate party spoiler loves to ramble on without contributing something positive. I can’t recall as to when he ever castigated his executive mates for receiving too much money in their pay packets. Just more tripe.

  17. Socrates
    March 7th, 2009 at 07:14 | #17

    From an engineers perspective much of this seems very acccurate. The past decade or so has seen a lot of organisations (private and public) focus on financial bottom lines at the expense of investment in what I would call long term growth. If your books looked better investing a budget surplus on the stock market for 10-12%, why bother investing in research or productive capacity? Just get stuff made in China instead.

    Look at many of the biggest organisations in the IS now in trouble, notably GM. They spent almost nothign on new technology, preferring to build pick-ups and make money by providing finance to buy the cars. Now they can’t make cars as well as Korea, never mind Japan.

  18. Ikonoclast
    March 7th, 2009 at 07:52 | #18

    Ernistine, in response to your post #11.

    Your first point is;

    “I prefer a unifying theoretical approach which simultaneously describes the individual agents and the aggregate outcome…”

    This makes me think of Smith’s butcher anecdote. I assume you mean persons when you say “individual agents” though you could also mean companies, corporations and groups generally if acting with a single purpose in some matter. Correct me if I am on the wrong track here.

    That sort of moral philosophy approach (i.e. which includes the motives of agents) is attractive and compelling. It’s what I might term (naively probably) a bottom up approach. If we understand why individuals act singly we might then be able to understand how they act in the aggregate and why an aggregate system actually works.

    I take a different view. Let me explain why.

    To my mind, a very profound statement by Francis Bacon is apropos; “that which is in contemplation is as the cause is in operation as the rule.”

    Bacon’s statement captures that fact “cause” or “causation” is merely a mental model imposed on natural events. In the actual operation of the natural event we should not, strictly speaking, talk of cause but simply of the rule or “Law” which governs the interrelation of phenomena.

    Where you speak of “describing agents”, I have assumed you mean to include a description of the inner motives of the agent like “self interest” or “maximising utility”. I may be wrong is this ascription. You may simply mean the behaviour of the agent. If it is the former, you are making, broadly speaking, an essentialist assumption about the agent. If it is the later, you are atomising phenomemena when you should be aggregating them and seeking “Laws”.

    The above is a hastily potted “refutation” of your position and as such vastly over-simplifies the argument and no doubt treats your position as a “straw man” position rather than the full position it is. I apologise for that… the limits of a blog you know.

    You also say, “Looking for “basic Laws” may work well in natural science as long as the system can be treated as exogenous to human behaviour. By contrast, economic data is dependent on the institutional environment, which is man-made* (philosophical ideas and legal framework). Hence regularities in economic data are dependent on the institutional environment.”

    This seems to me to be implying that human behaviour is some sort of special case and does belong in natural science. By extension, it is assumed that humanity is some sort of special case and does not belong in the natural world nor is it to be analysed in natural world terms.

    There is no evidence (of the empirical, scientific or material kind) that human behaviour is special in the sense that is governed by anything other natural laws. Human behaviour is complex but it is not special nor exogenous to nature.

    Just as in applied fluid mechanics we do not examine the actions or paths of individual atoms but rather the aggregate behaviour according to discovered laws so we should begin looking at any human system (late stage capitalism in this case) in an effort to discover the laws of aggregate behaviour.

    I don’t pretend it’s as simple. The laws of natural science cannot be legislated away for example. Some of the “laws” of a social science can be legislated away. However, we must remember that that “social science” still happens in the natural world and is still natural by the larger definition of natural.

    You correctly refer to regularities (and by implication irregularities and disjunctions) being dependent on the institutional environment. Aye, there’s the rub. I’m not saying it’s easy but the search for laws (not essentialist causes) must continue.

  19. Ikonoclast
    March 7th, 2009 at 08:02 | #19

    I’m going to have to preview my comments. I only see spelling mistakes, elisions and transpositions of words after I post.

  20. Ernestine Gross
    March 7th, 2009 at 08:27 | #20

    In reply to Chris Warren @15

    Thank you for your reply. The link you have provided indicates to me that there may be a serious problem with the education system in the USA in the sense that the sample of people interviewed about their financial predicament don’t seem to have understood compound interest. Maybe psychologists can say more about other difficulties. Restricting myself to my area, Economics, the interviews directly contradict M. Friedman’s permanent income hypothesis.

    No, existing data warehouses I’ve looked at don’t contain the data I am after. Since Steve Keen has done also some work showing that financial data exhibits chaotic behaviour, it is natural to look for non-linearities. I happen to know that some financial securities have non-linear payoffs. While non-linearity is a necessary condition, it is not sufficient for a chaotic process. [But we have to start somewhere unless all people in economics are really interested in eating All Bran every morning and go for a swimm in the backyard pool in the afternoon. Please don’t ask me to explain this – it is a private joke based on information found somewhere on this blog-site].

    You are effectively asking me to put blinkers on. Not a good idea, I’d say.

  21. Ikonoclast
    March 7th, 2009 at 09:19 | #21

    Eating All-bran in the morning and swimming in the afternoon sounds like a healthy regimen to me… unless you are implying an incontinence which befouls the pool.

  22. Ernestine Gross
    March 7th, 2009 at 14:20 | #22

    In reply to Iconoclast,

    Like you @ 19, I apologise for my typographical errors and promise to be a bit more careful by means of reviewing before pressing the submit key.

    No, need to apologise for treating my post @11 as a ‘straw man’. I allowed myself to be side-tracked a little and to wonder off into something which is tangential to the topic of the thread. I’d be happy to continue on from your post @18 if you repost at a week-end thread. Let me explain why.

    The topic of the thread is “The end of the cash nexus?” As I mentioned in 1 @6, Steve Keen’s work belongs to macro-economics. All of macro-economics and commerce is tied up with ‘cash’. As I have mentioned in 2 @6, I object to confusing economics with commerce. Thus, I may be forgiven for considering your post regarding Steve Keen’s work @ 1 being linked to the topic of the thread by the question mark and so is my subsequent comment.

  23. Ernestine Gross
    March 7th, 2009 at 14:23 | #23

    Iconoclast, would you please igore the “,” after No in paragraph 2,line 1 and make corrections as you see fit. Thanks.

  24. Ikonoclast
    March 7th, 2009 at 17:07 | #24

    Yes, I agree my post at one was in a technical sense “off-topic”. I was hoping JQ would post an update on his take of the progress of the GFC. I should have couched the request in a better form. I was forgetting my position as a guest here.

  25. SeanG
    March 7th, 2009 at 18:40 | #25

    I find this remark from Professor Quiggan’s post interesting: “There has been a huge shift in the location of innovation, with much of it either deriving from, or dependent on, public goods produced outside the market and government sectors, which may be referred to as social production.”

    I must admit that the great waves of technological innovation tend to see a correlation between profit-motive and social-motive. That is, the drivers (scientists, engineers, entrepreneurs) are driven by multiple factors other than pure profit and tend to see how their design can be used to improve society as a whole. However, I would like for Professor Quiggan to expand on his comments regarding the “public goods”.

    On the other matters.

    Firstly, the capital markets are essential for starting-up businesses. Almost anyone with equity capital market experience or private equity experience would find that comment jarring to them. Both financial theory and financial practice indicate that deep capital markets are essential for fully-functioning economies and for innovation. Let us not forget that it takes money for people to take time out to put together new patents for drugs or new technologies for communications.

    I find the argument about reducing work hours interesting and I invite everyone to look at the experience in France where they introduced a maximum 35 hour work week – it didn’t work there! I think that in an era of more flexible work arrangements you will experiences increasingly wild fluctuations of working time due to the changing nature of the employer-employee relationship and the expansion of those who are contractors or other consultant-type experts.

  26. Alice
    March 7th, 2009 at 19:00 | #26


    Ernestine is, I am sure implying just that, but it is a private joke. It could be also called a grudge.

  27. Alice
    March 7th, 2009 at 19:13 | #27

    Perhaps then, Ikonoklast, Ernestine should to explain “the private joke found elsewhere in this blog”? Eating all bran for breakfast and swimming is very healthy – something some of us could obviously do with more of. To my view, some propose method over substance.

  28. Ernestine Gross
    March 7th, 2009 at 19:19 | #28

    Alice @26, You are off topic, too.

  29. Alice
    March 7th, 2009 at 19:21 | #29

    Well then Ernestine, we have something in common it seems.

  30. Alice
    March 7th, 2009 at 19:26 | #30

    28# Pertaining to your way off topic comments at 20 Ernestine, to be precise about it.

  31. Ernestine Gross
    March 7th, 2009 at 22:32 | #31

    No, Alice @30. I was off-topic @11, 13, and 20 and now by default but not @6 and @14 and never for the reasons you invent on my behalf.

  32. Ikonoclast
    March 8th, 2009 at 07:28 | #32

    I have a Penguin Classics edition of Elizabeth Gaskell’s “North and South”. In the notes it is suggested that Thomas Carlyle invented the phrase “cash nexus”.

    Carlyle apparently inveighed against the “cash nexus,” in which people were related to each other only by a money transaction. Marx used this concept as I am sure we are all aware:

    “The bourgeoisie, wherever it has got the upper hand, has put an end to all feudal, patriarchal, idyllic relations. It has pitilessly torn asunder the motley feudal ties that bound man to his “natural superiors”, and has left no other nexus between man and man than naked self-interest, than callous “cash payment”. It has drowned out the most heavenly ecstacies of religious fervor, of chivalrous enthusiasm, of philistine sentimentalism, in the icy water of egotistical calculation….”

    Marx can be quite a florid and expressive writer can he not? I rather enjoy his style. (I assume Marx wrote this though perhaps as it is from the ‘Communist Manifesto’ Engels had a hand in it too.) When Marx refers to idyllic relations he is either being ironic or refering to those pockets of the idyllic which managed to exist amongst feudal and patriarchal relations.

    If I was being philosophically pedantic (which I always am), I would certainly take issue with the phrase “and has left no other nexus between man and man than naked self-interest” if Marx had not inserted the word “naked”. Without “naked” This phrase would assume there was a time when there was some nexus between human and human other than self interest. I doubt Marx idealised earlier historical phases.

  33. Alice
    March 8th, 2009 at 07:40 | #33

    Im glad you are keeping count of off topic transgressions Ernestine but perhaps your comment re people in economics talking about eating all bran for breakfast and going swimming in the backyard pool was drwan from the thread “the Treasury view: Swimming Pool Version”.
    This is perhaps one of those macroeconomic models you dont like but it does relates to this post in the following comment

    “As a corollary, it seems unlikely that large inequalities in income are beneficial to anyone except the recipients of high incomes.”

    The analogy of the student taking water from the shallow end in a bucket to the deep end, is in my view a criticism of government policies to redistribute income through tax or welfare policies from the wealthier to the poorer or to intervene in the market in any way whether it be through a fiscal stimulus or otherwise; a view I disagree with.

    I have heard policies on the redistribution of income or wealth described as a zero sum game which ignores second round and third round effects, implying its ultimate futility – in line with the bucket and swimming pool analogy (and this is off thread but not off topic).

    Lowering tax rates across the board rewards the rich disproportionately, defeating redistribution and the progressiveness of any tax policies. The progressiveness of tax policies has been seriously undermined in Australia over the most recent decade yet the greaatest blow to tax progressiveness did not come in the 1990s, but in 1982 when the top marginal tax rate was reduced by close to one third, and measures granted to lower tax bands went nowhere near matching this large gain to the already rich. So throughout the later speculative boom, the rich became even more wealthy due to the now lower tax burden on them. We have witnessed in Australia rising inequality of tax income forms ever since (.28 Gini for actual income in 1982 to .38 in 2005), reflecting in disproportionate gains to the top decile shares (29.1% share of taxable income in 1982 to 30.2% share in 2005).

    Inequality of tax income forms is trending up and has been doing so for almost three decades.

    My concern is not only that policy makers are (and have been) ignoring a disturbing and growing imbalance. We have not even been examining the causes, on the basis that ultimate intervention is futile ie “that moving water from one end of the swimming pool to another with a bucket will not raise the water in the swimming pool” and any wealth made by entrepreneurs reflects their market value and will of course “trickle down.”

    Trickle it may have but it never reached even the middle decile (8.6% share in 1982 to 7.3% in 2005), let alone the lowest (3.5% in 1982 to 2.3% in 2005).

    It is these faulty theories based on faulty assumptions, and the political acceptance of them, that are doing more harm than good to the Australian economy.

  34. Alice
    March 8th, 2009 at 08:01 | #34

    I would also like to add that the measure of inequality of tax income forms is also a conservative measure. When considering the numerous ways tax income can be minimised and the effect of people with income below the tax threshold the Gini for various broader measures of income (calculated by the ABS and others based on surveyed income forms) is often higher still.

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