Give working people more money because they will spend it

It's not about fairness, it's about the economy, stupid.

To date, the history of our current financial crisis has concentrated minds on the distribution of wealth in a way that we haven’t really seen for a generation. Filled with materialistic expectations, the withdrawal of credit and government subsidies from society has brought home some harsh realities. We can’t afford the lifestyle we have come to think we are entitled to. Wealthy people, once seen as social leaders, are increasingly treated as though they somehow stole what they earned.

Most of the time the redistribution of wealth is put in political terms – it ignores who had the original idea for a company or product or who put the money up in the first place to fund it. Instead, agitators argue that workers, because it is their toil that creates the goods and services, should get an equal participation in profits. Ironically, this is probably the right answer but the wrong reason – people should be given more money so that they can spend it.

The World Bank recently released numbers on the distribution of Corrado Gini’s index of income and wealth distribution. The Gini Index ranges from 1 to 100 and seeks to measure financial inequality in a society; a value of 100 means that a single person has all the money whilst as it declines money is more and more equally distributed.

Some interesting trends are showing up. For instance, in Latin America wealth inequality, although at a high level, is declining as a phenomenon. Crises like that seen in Argentina are working to redistribute wealth whilst in Brazil the new-found economic prosperity is becoming shared by a greater and greater proportion of society.  Africa, notably South Africa, displays disturbingly high levels of wealth concentration in the hands of a few.

Although we have a tendency to pillory ourselves here the UK, we actually come out quite well with a score of just under 26 – you would have to go to parts of Eastern Europe to find other countries with the kinds of equality that we possess. In fact, equality of wealth distribution has improved markedly between 1995 and 2010 when the latest data is available and embraces the financial crisis.

What is most disturbing though is the United States. The Gini index for the US has shown a marked and continuous increase of inequality, an effect that has been occurring since the 1970’s, and a phenomenon that has accelerated as the recovery from the financial crisis has gathered pace.

Economic commentators often talk about "the wealth effect", the confidence-boosting mental state that allows ordinary people to look at their total assets and give themselves the psychological comfort to stop hoarding money and start spending it. To this end the Federal Reserve in the US and western central banks have been complicit in propping up the stock and housing markets through ultra-accommodative monetary policies that placate the electorate through the illusion of financial affluence.  They will go about their day without necessarily calling for higher levels of taxation or the forced redistribution of wealth in the face of obvious inequalities. This has by and large worked to date but we are now entering a phase of prolonged sub-potential growth combined with rising wealth inequality in the US that will have long-range effects economically, socially and politically.

The problem arises from the fact that if you give wealthy people more money they don’t necessarily spend it – it becomes dormant and redundant. Give a poor person an extra £10 and they will spend it on food or new clothes, propelling consumption, but give an ultra-high net worth person another million pounds and more than likely it will lie in the bank largely unnoticed and more importantly unused. So in many respects the inequality of the distribution of wealth is not so much about "fairness" or venality, but more that the concentration of too much money into too few hands leads to economic stagnation adding to an already sub-par economic atmosphere.

Photograph: Getty Images

Head of Fixed Income and Macro, Old Mutual Global Investors

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Theresa May’s stage-managed election campaign keeps the public at bay

Jeremy Corbyn’s approach may be chaotic, but at least it’s more authentic.

The worst part about running an election campaign for a politician? Having to meet the general public. Those ordinary folk can be a tricky lot, with their lack of regard for being on-message, and their pesky real-life concerns.

But it looks like Theresa May has decided to avoid this inconvenience altogether during this snap general election campaign, as it turns out her visit to Leeds last night was so stage-managed that she barely had to face the public.

Accusations have been whizzing around online that at a campaign event at the Shine building in Leeds, the Prime Minister spoke to a room full of guests invited by the party, rather than local people or people who work in the building’s office space.

The Telegraph’s Chris Hope tweeted a picture of the room in which May was addressing her audience yesterday evening a little before 7pm. He pointed out that, being in Leeds, she was in “Labour territory”:

But a few locals who spied this picture online claimed that the audience did not look like who you’d expect to see congregated at Shine – a grade II-listed Victorian school that has been renovated into a community project housing office space and meeting rooms.

“Ask why she didn’t meet any of the people at the business who work in that beautiful building. Everyone there was an invite-only Tory,” tweeted Rik Kendell, a Leeds-based developer and designer who says he works in the Shine building. “She didn’t arrive until we’d all left for the day. Everyone in the building past 6pm was invite-only . . . They seemed to seek out the most clinical corner for their PR photos. Such a beautiful building to work in.”

Other tweeters also found the snapshot jarring:

Shine’s founders have pointed out that they didn’t host or invite Theresa May – rather the party hired out the space for a private event: “All visitors pay for meeting space in Shine and we do not seek out, bid for, or otherwise host any political parties,” wrote managing director Dawn O'Keefe. The guestlist was not down to Shine, but to the Tory party.

The audience consisted of journalists and around 150 Tory activists, according to the Guardian. This was instead of employees from the 16 offices housed in the building. I have asked the Conservative Party for clarification of who was in the audience and whether it was invite-only and am awaiting its response.

Jeremy Corbyn accused May of “hiding from the public”, and local Labour MP Richard Burgon commented that, “like a medieval monarch, she simply briefly relocated her travelling court of admirers to town and then moved on without so much as a nod to the people she considers to be her lowly subjects”.

But it doesn’t look like the Tories’ painstaking stage-management is a fool-proof plan. Having uniform audiences of the party faithful on the campaign trail seems to be confusing the Prime Minister somewhat. During a visit to a (rather sparsely populated) factory in Clay Cross, Derbyshire, yesterday, she appeared to forget where exactly on the campaign trail she was:

The management of Corbyn’s campaign has also resulted in gaffes – but for opposite reasons. A slightly more chaotic approach has led to him facing the wrong way, with his back to the cameras.

Corbyn’s blunder is born out of his instinct to address the crowd rather than the cameras – May’s problem is the other way round. Both, however, seem far more comfortable talking to the party faithful, even if they are venturing out of safe seat territory.

Anoosh Chakelian is senior writer at the New Statesman.

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