Economic studies have always focused on the meme of “ economic growth is good for the poor.” The 2002 paper of Dollar and Kraay is often quoted to prove this point and it generally sustains the oft-repeated mantra that growth, just like a rising tide, lifts all boats.
The shine and the luster—and relevance to the policy-making process—of this meme are now seriously being eclipsed by updated researches on inequality. The urgency of updating the studies on inequality came in the wake of Occupy Wall Street, the Arab Spring, and the effort to find answers to this vexing question: How did the super wealthy in the US fare during the recovery years after the Great Recession of 2008?
The question was relevant since the Great Recession was a greed-induced one. The subprime housing market collapsed after Wall Street packaged all sorts of exotic debt papers that recklessly financed housing loans to borrowers who cannot pay. Venerable investment houses collapsed with the housing bubble, dragging along foreign banks and investors caught up in that entanglement of greed.
It took a massive bailout of the too-big-to-fail banks and investment houses to prevent a collapse of Wall Street—and along with it the global financial system. The perpetrators of the financial scam that resulted in so much human suffering in the US and elsewhere, were saved by a taxpayer-funded bailout.
The French duo of Pikkety and Saez has answered that question. Their trailblazing work on income inequality in the US, rested on this finding —that from 2009 to 2012, the Top 10 percent sucked up 95 percent of all income gains and very little went to the sectors below that percentile.
Now comes three Mexican economists who sought to answer this question: “ Is growth good for the rich. Raymundo Campos-Vasquez, Emmanuel Chavez and Gerardo Esquivel came out with findings which said that “growth is really good for the really rich.”
Essentially they found out two things: that a one-percent rise in GDP would translate into two percent rise in the incomes of those in the “really rich” bracket or those in the top 0.1 and 0.01 of the income strata.
During downturns, the fall in income of the same very rich would just be just about the fall in income of the general population. No drastic fall in the income of the highest earners would take place. Or, the softest landings even during crunch time still belong to the super rich.
All the updated researchers agree on one thing. That the rise of the underclass through the route of hard work, talent and merit is tougher to take place in an environment too tilted in favor of the rich. And the skewed distribution of income cripples intergenerational mobility. In short, the full flowering of meritocracy is compromised under such skewed income gains.
The universal application of these updated studies on income gains and inequality is relevant to us, society that is no different from the others—a society that vacuums up much of the income gains into the very rich and the super rich. Under the most favorable growth environment—even if the 2014 GDP growth were to align to the expected 7 percent or higher—the gains would remain with the top percentile of the income bracket, specifically those at the 0.1 percent and the 0. 01 percent.
Even with a spectacular growth rate, there would be no income bonanza cascading into the bottom of society from above to lift the lives of those who need lifting the most. It will be status quo for people at the bottom but those at the top brackets will pull further ahead.
Those whose lives need income boost the most, this is assumed in all the updated researches, can only get succor from interventionist policy, redistributionist policies if you will. This is not such a bad word, if you think about it. Thomas Pikkety and Emmanuel Saez, for example, have recommended a return to the pre-Reagan tax rates for the rich.
The most depressing thing in our particular context is that the leadership of President Aquino is totally oblivious to these ground-breaking researches on inequality. His duty to lead seems to stop at curbing corruption, churning out impressive growth rates and impressing the likes of Fitch, Standard and Poor and Moody.
Anything beyond posting impressive statistics is beyond him. Bridging the Great Divide, what Mr. Obama has called the “defining challenge of our time” is not within Mr. Aquino’s mandate. Even the hard message in a papal exhortation, that trickle-down economics is a discredited dogma that does not work, has not been recognized by Mr. Aquino.
On occasions, Mr. Aquino talks about “inclusive growth” but mostly in a half-hearted, detached kind of way. He really cannot put himself into the ragged sandals of the impoverished masses below. He has stuck stubbornly to the campaign slogan, kung walang corrupt, walang mahirap, which by now is a rejected verity. Fighting corruption and establishing a new moral order, evidence has found out, will do nothing to bridge the great economic divide.
This is becoming apparent by the day. We will be marching to 2016 admittedly with impressive growth rates and more recognition from the credit rating agencies. Our central bankers and economic managers will be proclaimed the best in the region if not the best in the world.
But for the people at the bottom, it would be a joyless, meaningless growth. You cannot feed Triple A ratings to empty stomachs and hopeless lives.