Poor growth and/or increases in inequality owe as much to global forces as domestic policies

Note two things here. First, there are a lot of dots with very low income growth, low enough to deserve the label “stagnant”. Second, wherever similar-coloured dots are on an upward slope, higher-income groups left their lower-income compatriots behind. Aside from the very lowest deciles (who are often cared for with welfare benefits), that very often seems the case. Again, Lakner and Milanovic looked into this, and wrote: “Some examples with particularly low real growth rates among rich economies include almost the entire lower halves of the income distributions in Austria, Germany, Denmark, Greece and the United States. They all had overall 20-year growth rates of less than 20 per cent which translates, in the best case, as 0.9 per cent per capita annually.”

Finally, then, how do we interpret this? Corlett concludes “that periods of poor growth and/or increases in inequality are down to domestic policies such as on taxes, benefits, active labour market policies, housing, and financial regulation just as much as any global forces”. But nothing in the original elephant chart said otherwise. We should recall that these income measures include any effects policy may have had on incomes. In the UK, for example, income growth over the period was even for all groups except the very top and very bottom — but surely that owes a lot toan active redistributive policy in the early 2000s.

If anything, then, Corlett’s dissection corroborates what should have been the lesson of the original elephant chart: that there have indeed been pressures on the rich world’s lower middle, and also that national policymakers have lots of tools to address them. The idea that failure to do so drives the rise of populism remains justified.

Free Lunch: Shooting an elephant