3
$\begingroup$

In recent social protests, I have heard the claim that the economic growth benefits only the rich: they become richer while most people become poorer.

To check whether this claim is realistic, I looked for data relating economic growth (measured by the increase GDP) and real wages. I found this blog post, which shows that in the UK in 2008-2014, there has been positive economic growth while the real wages were declining.

The writer offers several explanations to this phenomenon, but they may be specific to the UK. So, my question is: what are some other examples of economic growth that comes together with decreasing real wages?

In general, what are examples of economic growth periods, in which few people benefit while most people become poorer?

$\endgroup$
  • $\begingroup$ Wealth is not a zero-sum game. The "rich get rich; poor get poorer" canard is neo-Mercantilist garbage. There are so many flaws to the zero-sum claim that it is the Economic equivalent of saying "three plus five equals threeve." There is a legitimate explanation for why "threeve" doesn't exist and so too is there a legitimate explanation for why wealth is not zero-sum, but the comprehensive answer really is "no it is not." $\endgroup$ – K. Alan Bates Apr 19 '16 at 14:53
  • $\begingroup$ @K.AlanBates the claim that "rich get rich; poor get poorer" is not based on a theoretic assumption that wealth is a zero-sum game. It is based on a realistic experience by which people feel that they become poorer even when there is economic growth. My question is whether the actual data supports such feelings. $\endgroup$ – Erel Segal-Halevi Apr 20 '16 at 0:14
  • $\begingroup$ "My question is whether the actual data supports such feelings." No. $\endgroup$ – K. Alan Bates Apr 20 '16 at 2:21
  • $\begingroup$ Somewhat relevant is this question and answers: economics.stackexchange.com/questions/10511/… $\endgroup$ – Ubiquitous Apr 20 '16 at 21:20
3
$\begingroup$

I have heard the claim that the economic growth benefits only the rich: they become richer while most people become poorer.

Decomposing this for semantic meaning, this only holds water if you are equating wealth with "Social Position" instead of actual improvement of conditions. Assuming real wealth, certainly the Poor do not get poorer. They benefit by a myriad of innovations and advancements made by others that continually drive prices downward into the realm of attainability. With that in mind, it is an entirely hollow statement to say that "The people at the top get more at the top while the people at the bottom get more at the bottom."

what are some other examples of economic growth that comes together with decreasing real wages?

This is more a conversation starter than a question for a simple response. I assume that you are considering aggregate wages (???) because there are a myriad of reasons why localized real wages can decrease while economic growth (localized or otherwise) continues upward. They are contrivances, sure, but the installation of an automated elevator in buildings creates in increase in real wealth but would invariably reduce the real wage of the elevator operator; An increase in operational efficiency inside an office environment which reduces the necessity for manual support staff creates real wealth for the business and likely for the professionals that designed and implemented the process improvements but would negatively impact the real wages of the support staff who are no longer necessary.

It really depends on your point of view.

In general, what are examples of periods in which few people benefit while most people become poorer?

This is a fairly short list. War. State expropriation.

Notice that I culled one of your key clauses "periods of economic growth." The only thing that can prevent economic growth is war.

$\endgroup$
6
$\begingroup$

I suppose that it depends on the time scale you are considering. Over the very long run the poor seem to have benefited far more than the rich from growth. See for example Robert J. Samuelson in the Washington Post:

By 1915, the United States was the world’s richest nation — and yet, most Americans were dirt poor by today’s standards. Adjusted for inflation, men’s average wages were about a third of what full-time workers now earn. The average workweek in manufacturing hovered around 50 hours, and many employees worked a half day on Saturday. Less than a third of homes had electric lights. Less than a fifth of the adult population were high school graduates.

A hundred years ago leisure and electric lighting were luxuries. Now they are near ubiquitous in the west. Higher education used to be rare, now it is common. Heath-care was once dangerous and of limited efficacy for poor and rich alike, and now we use lasers, chemicals, and radiation to great curative effect.

Billionaires All (Or Practically So) by Don Boudreaux

In 1916 even Rockefeller had little access to air conditioning; the range of cuisines from which he could choose his meals was drearily narrow; he was attached by wire to a wall or a floor whenever he spoke on the telephone; he could entertain and inform himself neither with radio nor television; forget about computers or tablets. Every movie he watched was silent and in black and white. Unlike us today, in 1916 it took Rockefeller days, rather than hours, to get from New York to Europe – or even to California. Although he was chauffeured in his (un-air-conditioned) limousine, the ride he experienced was bumpier and more perilous than is any ride enjoyed today by an ordinary American. Rockefeller’s fine Swiss watch was far less accurate than is today’s cheapest Timex. Were he to need the services of a fire and rescue team, it would have taken that team longer to reach Rockefeller, and the effectiveness of their efforts to save his life or his property were much less than is the effectiveness of such teams’ efforts today.

If in 1916 Rockefeller or any of his children or grandchildren caught pneumonia or cut a finger on a rusty nail, the risk of death was much higher than it is today because antibiotics were unavailable. Of course, Rockefeller also had no access to statins, hip- or knee-replacement surgeries, Lasik procedures, contact lenses, antihistamines, or even sunglasses that protected his eyes from ultraviolet rays. Yet he was then one of the world’s richest men – deprived as he nevertheless was of many of the miraculous goods and services that we ordinary Americans today take for granted.

$\endgroup$
  • $\begingroup$ very astute observation. I was going to use the "Banana in January" or "King's Transport" anecdotes, but decided to trim them from my reply. $\endgroup$ – K. Alan Bates Apr 19 '16 at 15:10
  • 2
    $\begingroup$ Then there is the old story from the height of the Cold War. When the politburo was at the height of its domestic propaganda, they would seek photographs from the worst slums in the United States. They would propagandize that "this is what Capitalism is. Look at how horrible it is" but the propaganda would not work on the Soviet poor because in every one of the windows in every one of the slums would be the glow of a television screen. $\endgroup$ – K. Alan Bates Apr 19 '16 at 15:13
  • $\begingroup$ OK, this is about the long run, but what about the short run? $\endgroup$ – Erel Segal-Halevi Apr 20 '16 at 0:17
  • $\begingroup$ @ErelSegal-Halevi In the short run, each individual needs water, shelter, food, and clothing. If they have those, then their short run gets to be a little bit longer run. $\endgroup$ – K. Alan Bates Apr 20 '16 at 2:36

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.