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Owen Jones and the Left's fantasy economics

No matter how much living standards rise, wages increase, and technology continues to liberate our lives, it will never be enough for the Owen Joneses of this world

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Fantasyland for Owen and the gang
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Guy Bentley
On 14 December 2012 18:23

Last night on BBC Two's ‘This Week’, Owen Jones – one of Britain’s favourite class-warring, Tory-hating leftie commentators – was pontificating on the vicious welfare cuts carried out by the chancellor George Osborne and this sinister strategy of dividing the poor into factions, instead of focusing on those ‘one-percenters’ who of course are responsible for all our economic woes.

Jones claims that a 1 percent cap on benefits is an outrage and that ordinary people in work are being punished because employers are paying 'bad wages'. Furthermore, Jones says that Ed Miliband should expose the 'inhumanity' of the Tory party.

This is kind of left wing hyperbole we have come to expect every time there is a need for welfare reform or reductions in public spending.

Jones rails against the division being created between public and private sector workers. This is a strange statement, since workers in the public sector necessarily derive their wages from the private sector in the form of tax, and, on average, now earn more than their private sector counterparts. It would seem that there is a divide by definition rather than one of the chancellor’s design.

To the vast majority of the British public it will not seem unreasonable that in hard economic times, private sector workers should be getting more bang for their buck. This has nothing to do with dividing society; it is simply dealing with the fact that the private sector cannot continue to be treated like the politicians’ piggy bank, constantly raided whenever they cannot balance the books.

But to Jones, real wages were apparently declining before the financial crisis, and he argues that the bottom half’s pay stagnated while the bottom third’s actually started to decline.

This claim has become fashionable in many circles; in fact our leftie fantasy goes a little something like this:

Ever since the late seventies and early eighties the focus on de-regulation and weakening of trade unions meant that employers no longer have the same pressure to pay decent wages and that we have a permanent state of mass unemployment, not because of the welfare system, but because the government refuses to play an active role in the economy to maintain full employment.

It is a neat argument and a convincing one for anyone who refuses to look at the actual data. But here is what really happened to wages in the last 25 years (these figures were released by the Office for National Statistics and are adjusted for inflation):

 

From these figures we see that the story of stagnant wages and living standards is largely a myth. Not only this but, according to the Resolution Foundation, the proportion of UK workers earning up to or below the national minimum wage is currently 3.8 percent, meaning that 96.2 percent of the UK workforce is being paid above the minimum wage. But these figures are not the only measure by which the living standards of all in society have risen in the last 25 years.

We must remember that not only do we have more money than ever before but what that money can buy us has improved dramatically. Answer this: Would you rather buy a car from 25 years ago or one built today? Would rather buy a walkman or an iPod? A computer from 25 years ago or a MacBook Air?

One reason we cannot immediately quantify how much better off we are now than 25 years ago is the fact that the increasing quality of goods is incredibly difficult to measure; but one need only think how much more convenient and enjoyable our consumer goods are today than in the near past.

And there is also the measure of the amount of labour hours it takes to earn the goods and services we wish to buy. The American economist Steve Horwitz gives the example of buying a stereo system in the 1960s which cost at the time $500 and which at the average industrial wage took 200 hours to earn.

For the same number of labour hours today the average consumer would have amassed $3880 and could by an LCD TV, a blue-ray player, speakers, an iPod, a laptop, and a digital camera to take a picture of their big grin. And all of these products are of course much higher quality than the stereo system of the 60s.

This is also true of basic goods such as chicken and other meat products which are no longer luxuries. In fact, 95.5 percent of households are able to afford meat or fish at least every other day and 99 percent of households have washing machines, TVs, telephones, and indoor lavatories.

The problem with Jones’s analysis is that when he speaks about the poor and particularly those in work he is making assumptions based on snap shot data. When looking at poverty and low wages one must not assume that through the years we are looking at the same group of people who we have failed to lift themselves out of poverty.

When we track individuals overtime what we tend to find is that those who start out on low wages and in poverty are the young and immigrants. But they do not stay poor for long, working their way up and earning higher wages.

it is no surprise that the Resolution Foundation found that the vast majority of low wage workers were between the ages of 16 and 21. Does Jones really expect a first job to be the one that pays significantly above the national average when the employee in question has no experience, hence a risk on the employer’s part in the first place?

It is important to also remember that our poverty measurements are relative not absolute. This means that if you earn below 60 percent of the median wage you are in poverty. This has the strange consequence of causing poverty to decline in the past two recessions as the wages of middle and higher income earners decline.

It is true that since the crash of 2008 prices have risen and wages of stagnated or fallen. However this should not condemn the previous years of success. Indeed this is not the fault of greedy employers exploiting their workers but much more the fault of our government and central bank.

The primary reason we have not experienced even higher wages and standards of living is due to the fact that the bank of England has, ever since the 1970s, engaged in a merciless debasement of our currency and helped create the conditions for an artificial credit boom and the inevitable bust. Along with excessive and complex taxation, this has meant that the UK has failed to realise its true potential.

We often hear the likes of Owen Jones dismiss the success which capitalism has brought us. We have seen that his criticism is largely based on false logic and dodgy statistics; but what we never hear of is what they are comparing the last 25 years with.

This is why, no matter how much living standards rise, wages increase, and technology continues to liberate our lives, it will never be enough for the Owen Joneses of this world. What the left continues to do is to compare capitalism in practice with their socialist utopia in theory.

For the rest of us who prefer to live in the here and now, and not an undergraduate introduction to socialism, cheer up and know that, despite all the crises and difficulties coming over the next decade, if we continue to fight for capitalism and freedom, the future will be brighter than anything we have so far conceived. 

Guy Bentley is a former editorial assistant for The Commentator

Read more on: resolution foundation, Owen Jones, economics, living standards, ed miliband, tory party, employment, and capitalism
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