This graph comes to us from Paul Krugman, Competitiveness and Class Warfare. He uses it primarily to make the case that the idea of national competitiveness is nonsense. You can see that most starkly with France, which has a strong welfare state, and the United States, which has an extremely stingy one. (Don’t worry about the slight divergence at the very end; that is due to the catastrophic austerity policies in the EU.)
There is a long tradition of people freaking out about other countries becoming too competitive and the US falling behind. There is always some “star” country that people are afraid of. In the 1980s, it was Japan. Now it is China. And this supposed question for competitiveness is always used to make the lives of Americans worse. It is a reason why we have to destroy unions. It is the primary reason why must make public education boring and turn our children into top quality multiple choice test takers. And it is the reason why we must bow down to the “job creators.” Otherwise, China will take all our jobs and we will starve to death.
This isn’t to say that any nation can do anything it wants. There are a lot of things that can hurt the economy. But what it does mean is that the things that people in this country complain about don’t matter. The supposed big problem in France is that employees are really hard to fire. But we certainly don’t see that in terms of GDP growth. Similarly, with the Gini coefficient, which measures income inequality. Japan and France are relatively low at 63 and 69. But the United States is 85 — one of the highest in the world — even higher than Zimbabwe.
What this shows is that our economic system is the way it is because we’ve made it that way. There is nothing natural about it. And more to the point, these policies are not designed to grow our economy. Milton Friedman’s old idea is just wrong: it isn’t that the rich are pulling away but that the lives of the poor are being improved as well. In fact, there is more and more indication that all of this inequality is also bad for the rich.
To me, it is all very simple. I’ve been hammering on this for a while. If we don’t have an economic system that shares gains relatively fairly, then there is no point to continue on with it. What we have is a system that is already highly unequal. And then we add to that a system that just makes inequality worse over time. And then we add to that a system where the poor have little chance of becoming rich. And we end up with the modern equivalent of feudalism.
I know the conservative (and even more so, libertarian) response to this: we just haven’t gone far enough! The system is “free” enough to cause problems but not “free” enough to fix them all. But this is based on an idea that just doesn’t fly. There are almost no systems in any field of endeavor that just get worse and worse until you reach the solution and are then suddenly good. In general, if you follow a path and things are getting worse, it means you are going the wrong direction. See gradient descent.
But I think conservatives understand this. They are not pushing these policies because they think they are ultimately good. Instead, they think that the market (corrupt as it is) has picked the correct winners and so we should do everything we can to further help them. This is why libertarians are almost always against labor unions. It has nothing to do with freedom — much less the common good. It is just that they have decided that businesses are “good” and workers are “bad.”
The rest of us need to stop buying all this nonsense about how screwing over the poor and middle class is actually for our own good. It isn’t even for the overall economy’s own good.