The UK’s unemployment rate is 4.1%, the inflation rate is growing at 3.1% and the economy is growing at 0.6% quarter on quarter. That’s how the economy is doing, what more do we need to know?
Well, it would be useful to know whether the unemployed are predominantly in certain income groups, or that income growth was greater in particular parts of the economy Like, more for capitalists and less for workers?
As Steve and Phil discuss this week, economists are building business models built on aggregates. Breaking down aggregate data into functions in society, or income, will add a lot of extra complexity to models, but they would do a much better job of showing us what’s going on. For example, central bank policy right now aims to restrict spending and wage growth to tame inflation. But, even if that was the cause of inflation, what if those creating inflation by spending more on services, are distinct from those facing the consequences of central bank policy, losing jobs and paying higher mortgages?
Steve points out that as the economy slows – and it has to because of climate change - knowing the distribution of income and consumption becomes vitally important. Unless we are prepared to see the rich grow richer at the expense of everyone else.
Economic models are built on aggregates of key variables. Those aggregates hide distribution impacts. That makes it easier for central banks to pursue monetary policy without worrying about the consequences.
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[00:00:03] 8. Here comes a good night for all the autofahrers.
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[00:00:34] I mean, lots and lots of international discussions is part of my job.
[00:00:38] And the story for the last two years has been just how exceptional the performance of
[00:00:44] the US economy has been.
[00:00:45] And that's not a secret.
[00:00:47] This is the deep-unking economics podcast with Steve Keene and Phil Dobby.
[00:00:55] Well, the economy might be performing well, but it's not so good in the United States
[00:00:59] for the 4.3% of the population who are unemployed, or those in the District of Columbia
[00:01:04] where the unemployment rate is 5.5%, all much more than it was before the pandemic.
[00:01:08] All the low-income workers who have seen their real wages grow less than 20% since 1979
[00:01:13] compared to the 46% for the top 10%.
[00:01:17] In the UK, the first time home buyers see the housing loan repayments increase from 17%
[00:01:22] of their total income to more than 22% in just a few years.
[00:01:27] So we can say things are looking better in aggregate, but do we have a clear idea of who
[00:01:32] winners and losers are and can you really determine public policy on aggregate statistics?
[00:01:37] That's this week on the Deep-unking economics podcast.
[00:01:48] Well, the UK's unemployment rate is 4.1%.
[00:01:51] The inflation rate is growing at 3.1%.
[00:01:53] The economy is growing at 0.6% quarter on quarter.
[00:01:55] There we are.
[00:01:57] That's how the economy is doing.
[00:01:58] What else do we need to do?
[00:02:00] Well, Steve, they are all aggregates.
[00:02:03] Of course, if you aggregate gender data, I can tell you that everyone is 52% female.
[00:02:07] They're all the pregnancy rate would be half what it really is because the men just aren't well
[00:02:12] they are.
[00:02:13] I was a bit sad they weren't pulling their load.
[00:02:15] And I thought, this has gone off in the direction.
[00:02:19] I don't want to take it.
[00:02:20] But anyway, yes, so 52% female and maybe these days we are.
[00:02:26] But it is a bit meaningless, isn't it?
[00:02:28] Because aggregates mean that we just love this idea of one simple number but that one
[00:02:33] simple number generally is meaningless.
[00:02:36] Yeah, because it leaves out the distribution.
[00:02:38] This is one, there's a whole lot of reason why it's about idea, they're just solely working
[00:02:43] aggregates and it also reflects the immaturity of economics that it still does.
[00:02:49] That is a matter of course, work with ridiculous aggregates when you know if we are...
[00:02:54] It's like giving away the forecast for planet Earth.
[00:02:57] That would be really useful.
[00:02:59] The temperature there will be 13 degrees.
[00:03:01] The wind speed will be blue.
[00:03:04] It's just as ridiculous as doing it more even more so the previous example.
[00:03:08] You've got to break it down with the regions and with the economic data,
[00:03:11] it should be breaking it down into income classes or sources of income.
[00:03:15] And that, to the fact that it isn't done,
[00:03:17] comes out of the whole revolts.
[00:03:20] I wouldn't call it revolution.
[00:03:21] But revolved by the neocococicles against the classical school and the classical students
[00:03:25] to talk about capitalists and workers and landlords and finance years.
[00:03:29] And at least in that sense, disaggregate to important,
[00:03:34] or the alternative sources of income, one can earn and therefore you'd know what's happening
[00:03:39] to your social class at least if not to use specifically.
[00:03:43] Whereas in the classical school, it's all about the commodity.
[00:03:46] Utility maximizing, consumerism and let's assume we have a representative agent
[00:03:51] who's preference is just a lot of podswap.
[00:03:54] That's right.
[00:03:54] So we are all utility maximizing ration agents.
[00:03:57] So we are all individuals.
[00:04:01] But we all are there to maximise our utility whatever that might be on your own
[00:04:04] rational decisions.
[00:04:05] Why did the children cross the road?
[00:04:08] Yeah, to maximize its utility.
[00:04:09] Right.
[00:04:10] And where's this going to take us?
[00:04:11] So why did the other one decide not to to maximize its utility?
[00:04:15] Wonderful answer.
[00:04:17] Yeah, well actually, the answer if you've got a net situation is they're both halfway across
[00:04:21] the right on that.
[00:04:22] That's right.
[00:04:23] We have the Harsenberg uncertainty principle for chicken.
[00:04:25] Which sort of, that way, that.
[00:04:28] So the way is the chicken dead because of an aggregation problem is the answer
[00:04:32] you're going over by car because it wasn't either on either side of the road.
[00:04:36] There's a problem.
[00:04:37] But I mean, is this a societal problem?
[00:04:39] It's not actually not just economics, is it?
[00:04:40] So for example, you know, all this controversy in the UK about school grades
[00:04:46] because off-status being given classifications to schools from either being inadequate
[00:04:51] to being outstanding.
[00:04:52] And now they are based on a whole lot of variables.
[00:04:54] That's why they give those grades.
[00:04:57] But no one digs down on those variables.
[00:04:58] They're just when you know, are we sending our kids to an at-sounding school?
[00:05:02] If so, we'll let's move into that area.
[00:05:03] Let's buy a house and almost certainly house prices have gone up as a result of this
[00:05:07] one word because we have aggregated all the findings were off-stat into this need for
[00:05:14] one word because we can't cope with any more than one word.
[00:05:18] We can't read the blasted report and find out how the school really performs.
[00:05:21] So I mean, so it's not just economics.
[00:05:24] And we are all to blame really.
[00:05:26] We just want life to be simple and then there are consequences like with house prices
[00:05:30] of this simplicity.
[00:05:32] Yeah, but to me it is certainly something that benefits people in power because
[00:05:38] basically it comes down to their old mantra.
[00:05:41] Don't complain about the distribution and become a rising tide of school boats.
[00:05:45] Let's get GDP to increase the speed of your economy and therefore even the poorest will
[00:05:49] be getting enough to live and don't worry about the difference between the poorest
[00:05:52] and the richest.
[00:05:53] And so there's certainly a political measure that suits dominant forces in our society
[00:05:59] these days, so it's ignored the distribution of income.
[00:06:03] And I thought that's something you've seen throughout history.
[00:06:05] You know, the fairer hotel in the slaves looked at.
[00:06:07] We're worried about it on the air, but here we're doing pretty okay.
[00:06:09] So it is a nice way for those in power to office-go about the importance of power.
[00:06:15] But we aren't taught it on the beginning at any economics.
[00:06:19] Now, I wonder whether at the beginning before you've got to be taught the simplicity.
[00:06:26] So we can argue about demand and supply curves.
[00:06:29] So we've done that many times in the past.
[00:06:34] But the idea that there is some sort of relationship between demand and supply is fine.
[00:06:40] But it's when you start looking at areas aggregate demand.
[00:06:43] So aggregate demand includes foreign holidays, yachts, apples, potatoes, computer software,
[00:06:50] visits to a rather disreputable massage house.
[00:06:55] It all, it's all just there isn't it?
[00:06:57] And that aggregate demand curve to such upon its meaningless.
[00:07:03] But it's useful isn't it to teach a student that there's a difference between demand and supply
[00:07:08] at the aggregate level or does it do damage from day one in any workplace?
[00:07:12] I mean, it does damage from day one.
[00:07:16] But the aggregation in the technical sense in economics has been a dilemma for the nio-classical school all the way through.
[00:07:23] And a lot of the distortions of the theory have been undertaken consciously or otherwise to evade the consequences
[00:07:31] of the impossibility of aggregating from the foundations actually shows.
[00:07:35] So this is like this is getting to the technical stuff.
[00:07:39] But if you look at the classical school of economic analysis,
[00:07:43] this is serrally because the way it was set up and talked about workers in capitalist.
[00:07:46] Mark Marx used the terminology, but you had, you know, the Smiths spoke about industrious people
[00:07:53] and then people who acquire capital to have to put them to work.
[00:07:58] And basically his work is in capitalist.
[00:08:00] Ricardo focused upon landlords versus capitalist and one of the income to go to capitalist rather than
[00:08:05] landlords so that the economy would continue growing for longer, which is why supported the abolition of the cornlots.
[00:08:11] So all this stuff had a class component to it and when you've got classes,
[00:08:14] you're talking about different sources of income obviously,
[00:08:17] and you're talking about far different levels of wealth because if you're a capitalist with only capital,
[00:08:22] you can hire workers, you will normally be far wealthier per-use of every basis than you average work
[00:08:27] or certainly back in the 19th century.
[00:08:30] So that was the classical school.
[00:08:31] But the rifle school was a, we were only called neoclassical and that was actually in the term of insult by a rebel and it wasn't a specific term.
[00:08:40] The day chose.
[00:08:41] And they argue well, there's all about subjective utility.
[00:08:45] And you know, the classical talked about labor theory of value, cost of production, determining processes and so on.
[00:08:52] It was all object if you could actually measure their foundations.
[00:08:56] So the neoclassical said, no, no, no.
[00:08:58] But utility maximizing and you cannot measure what one person gets in satisfaction out of,
[00:09:05] out of a particular commodity compared to the cassette instruction.
[00:09:08] Somebody else got some of the commodity.
[00:09:10] A poor person could, a rich man, they've actually seen this argued in the text,
[00:09:14] a rich man could go more utility out of an extra dollar of consumption than a poor man.
[00:09:21] And so basically, you can't do it into a personal comparisons.
[00:09:25] Now that meant that they could have made the whole class issue in the classical school.
[00:09:29] But it then meant they had issues.
[00:09:30] Well, how do we add a, how to be add one, you know, dobby and cane?
[00:09:34] How to be out together?
[00:09:36] And if we talk about no dobby's income and kings income,
[00:09:38] yes, you can, that's a pretty easy sum to do.
[00:09:41] W utility and coins utility are cannot compare the two.
[00:09:45] So what then is a result of that when they actually tried to go through and do the objective adding together all subjective.
[00:09:54] Elements, a pre-tility and so on.
[00:09:57] They found mathematical conundrums and the, the main mathematical,
[00:10:01] you may have heard me rave about a few occasions before it's called the Son and Shion Manchelle D'Abrir theorem.
[00:10:08] And this is then named out of the three characters who read this cover that the first people to write about it were a guy called Gorman in 1953.
[00:10:16] And Paul Samus in in 1956.
[00:10:18] And then there's this independently we just cover the same condition.
[00:10:22] They said, well, under what conditions can you get a market demand curve?
[00:10:26] No, this is not the aggregate demand curve.
[00:10:28] This is just like the demand for apples.
[00:10:31] How can you get a demand curve for apples at the market level that has the same properties as the demand curve we can derive for an individual?
[00:10:39] So can I, if you might have a go in a bit of a diet drive here, or you want to talk about something?
[00:10:43] Yeah, yeah, so it's a way that now classicles describe and individual, as to say,
[00:10:48] individual has preferences where those preferences have properties that more is prepared to list.
[00:10:55] If you can see a more of an individual item, you get less satisfaction from the additional ones from the first item.
[00:11:02] And then they'd want you to make a choice as if you prefer a basket aid or a basket be.
[00:11:07] That must always be the case regardless of the process you're saying which, you know, which bundle you go to actually get higher utility from that shouldn't be affected by the process.
[00:11:15] So they pull those rules together and the way they derive what they call a demand curve for an individual is to say, well, let's
[00:11:21] whack the commodity we're interested about on the horizontal axis. Let's say that apples and let's
[00:11:26] whack all other commodities on the vertical axis and let's assume your income is unaffected by changing the process of apples.
[00:11:33] And that's fair enough, you know, individual, you know, be you changing the process of your apples won't necessarily change my income.
[00:11:39] So what they do is they draw a straight line connecting what you could buy all other goods if you spend all your money on everything except apples.
[00:11:47] And then what you could buy in terms of apples has been all you're going to be buying only apples at the straight line.
[00:11:52] And then they say let's try that that's the slope of the line depends upon the process of apples compared to, you know, the process of gold.
[00:11:59] Okay. Then they change the process apples. The twice as expensive we can buy not just half as many apples in the aggregate,
[00:12:06] you're going to make a different decision trading off your utility from other consumption to the Apple consumption.
[00:12:12] And that but they what every time they change the line, they kept the intersection on the vertical axis constant
[00:12:17] because we're assuming changing the process of apples doesn't change your income.
[00:12:22] So you can store buyers much of everything else if you buy nothing, everything except apples.
[00:12:27] And that unless you're an apple picker, yeah, of the right apple picker's son, you know, you're only picking apples into the apple picker comes.
[00:12:34] Yeah, okay. Right. Okay. So you got to you got to you got to line which rotates from a fixed point.
[00:12:40] And then that with a couple of other modifications means that you can derive necessarily derived demand.
[00:12:46] Could have been the way.
[00:12:47] Which one is the most expensive for the initial?
[00:12:49] The most expensive.
[00:12:50] We should be able to collect apples.
[00:12:51] But anyway, you're going to come back to the end.
[00:12:53] We're going to try to do the end.
[00:12:54] LAAW Capital L Law of Demand.
[00:12:57] Now some mathematically sophisticated economists there are lots who think they are but they're not.
[00:13:01] But some of the sophisticated ones.
[00:13:03] So well, when you're trying to work out the market curve, market demand curve for apples,
[00:13:08] you've got to add up everybody in the economy, okay?
[00:13:11] 60 million British people and therefore some of that 60 million in a necessarily going to have
[00:13:16] their incomes affected by a change in the process for apples.
[00:13:20] So therefore that point which is fixed when you do it for individual varies when you do it for the market.
[00:13:26] Under what conditions can you aggregate in that situation where the point will change for
[00:13:31] every individual 60 million people each time you change the price of apples.
[00:13:37] Some of those 60 million people have their income increase to their producers or decrease
[00:13:42] if their consumer's in a production process since.
[00:13:46] So it did to the point of rotation is going to wobble.
[00:13:49] Under what conditions will you still get a down-sloping market demand curve?
[00:13:53] And the conditions were that first of all, your demand does not change within income.
[00:13:58] So if you bought one apple, just as two rolls of toilet paper at income, you know,
[00:14:05] income x gets to 100 x you're going to be buying 200 apples in 2012 or maybe it's a linear
[00:14:10] multiple of both.
[00:14:12] But what's the use that's not, it's nonsense.
[00:14:14] Not use it proves it's proof by contradiction and this is what I find fascinating about
[00:14:19] neoclassicals.
[00:14:19] They'll get to a point where they prove that they cannot do what they wish to do and they carry
[00:14:23] on anywhere and call it mathematics.
[00:14:25] So that the condition that Samuelson put at best, he said that the only way that you could
[00:14:31] change the distribution of income, which happens when you change the process and still get
[00:14:35] the same aggregate outcome is where's demand is the same for all men that go about the sex
[00:14:42] of them.
[00:14:42] Everybody in the economy has to have the same preferences and those preferences don't
[00:14:47] change within income.
[00:14:49] So it takes this Taylor Swift to eat an apple.
[00:14:51] Yeah, that's right.
[00:14:52] And that theory is completely blown out because everyone all of a sudden wants
[00:14:55] apples.
[00:14:55] Well, what it means is they the only way can aggregate is that the economy consists
[00:14:59] of one person consuming one good.
[00:15:01] That's it.
[00:15:03] It's a group by contradiction you can't do it.
[00:15:05] Now, of course, look at they draw down a slightly market demand comes all the bloody time.
[00:15:09] So they've got an intellectual fallacy at the heart of their own theory, which they refuse to
[00:15:12] acknowledge and therefore, you know, the aggregation issue, I mean, you cannot do anything
[00:15:17] other than in the e-e-e-e all you can analyse with near-classical theory is
[00:15:21] Robinson Crusoe on an island eating Coke and up to before Friday it turns up.
[00:15:25] That's the demand of the theory.
[00:15:27] So this is aggregation is actually the major problem in the classical economics and they're
[00:15:31] not bloody aware of it.
[00:15:33] So this aggregation by income, I want to talk about that more in the second half.
[00:15:37] Because I think this is the crucial part.
[00:15:39] And it's particularly relevant now because I look at the aggregate data for, for example,
[00:15:45] employment and in the back of my mind, you know, anecdotally I can't help feeling that the people who are
[00:15:51] getting hit by central bank policies right now and that, you know, particularly with losing jobs
[00:15:58] on the people who are not causing inflation.
[00:16:01] And if, but we don't see that because it hidden in their aggregate data, if that data is
[00:16:06] disaggregated to a point where central banks could look and say, well, do you know what, when we put
[00:16:11] interest rates people lose jobs?
[00:16:14] But when we look at people who are actually pushing prices, it's not the people who are losing their
[00:16:18] jobs. I mean, if that, if that, if that, if this, if this aggregation made that information obvious,
[00:16:24] that's maybe central banks would change their ways. Maybe that's why it's not being disaggregated.
[00:16:28] Maybe it'll bring too many home truth perhaps. But we'll look at that when we come back on the
[00:16:32] debunking economics podcast. This means Steve Keane back in a second.
[00:16:35] This is the debunking economics podcast with Steve Keane and Phil Dobby.
[00:16:51] Is the answer actually that when we have data like, for example, the unemployment rate is 4.1
[00:16:57] percent and a top line should we actually have the range as well? So rather than saying it's 4.2
[00:17:05] percent, if we look at, you know, the variables which might be unemployment by age and by income group.
[00:17:12] We get told, okay, this time it's 4.2 percent but the range is 2.1 percent to 18 percent.
[00:17:18] So we know that something amiss. Other times it might be it's 4.2 percent but the range is 4.1
[00:17:22] percent to 4.6 percent. So we know that there's less variation. Is that plus or minus percentage,
[00:17:29] which would be more useful actually than the number itself wouldn't it? That's the number we want to see,
[00:17:34] isn't it? No, I think that's the, honestly, they'd guess to be too complicated for human
[00:17:39] stress process because we're used to thinking and most we think it turns the two dimensions,
[00:17:43] you know, left and right up and down. We tend to be two dimension now thinking.
[00:17:47] And there, that was actually collected. So if you go and take a look at the International Labor
[00:17:51] or Organization unemployment data, what they have is that I'm an applying by men, by women,
[00:17:55] by total, by 15 to 64 and then age, man's inside the whole thing. It's all the data's there.
[00:18:02] Now, what do I do? I take the aggregate, okay, it's just too complicated to take those divisions.
[00:18:07] What would make sense? And this is what the classical school used to do. And it's what I do in my own
[00:18:11] is breaking it down, being come source. Workers, capitalists, mancos, fundamentally,
[00:18:17] including landlords as well if you like. Now that way, you can say and then you'd get
[00:18:21] ranges, be where you say, okay, well, overall GDP increase by, say, say 5%, but workers went back
[00:18:29] with 2%, capitalists went ahead 1%, landlust got 2% and finance years gained by 10%.
[00:18:35] To hang on a second, there's something wrong with the economy that continues popping up finance rather than
[00:18:40] three major sources of income. So getting back to the idea of utility maximizing rational agents.
[00:18:46] I mean, you could use that if you're using those categories because you could say,
[00:18:50] that's a very good point. You could be in the Department of Interrupting, but in the great
[00:18:55] front of my now-in-curment first made that point when he realized the the son of mine
[00:19:00] manager of a conditions and what it did to general equilibrium theory. He wrote a piece called the
[00:19:07] I've forgotten the actual title of a part, it was the Emperor Hasner Closed. And what he said
[00:19:11] was we may be forced to work at a higher level of aggregation. The idea that we start from the
[00:19:16] ice-led individuals and ideally we may have to abandon. And that's what should have happened. So
[00:19:20] you said if you do it, if you say, let's lump together the raw capitalism or workers and
[00:19:24] all finance is then you might say, well, that's you now imagine they've got similar preferences. That
[00:19:28] makes sense. Yeah. Well, you know, the workers just want to keep their jobs and pay for their
[00:19:35] accommodation and having a food to live off whereas the yeah, the financiers just want to make
[00:19:40] more money. I guess or they you know, they'll have their own investment behavior and so forth.
[00:19:46] But it's hard with those, those classifications. I mean what is a capitalist? What is a worker?
[00:19:52] I mean those boundaries, what am I for example? I don't know. I mean I run my own business. I'm
[00:19:56] I work at a UNI-Europe. You'll be a bit, we've been one of the small groups of exceptions, but
[00:20:02] I think you did meant, um, uh, Rifted Murdoch who played work at his capitalist. Also a
[00:20:07] tight ward by the way, we've got a great straight picked up. Yeah, just to do it.
[00:20:11] Um, did not tell us to start with the course? Of course. Yeah. Okay, okay, okay. You can't say that
[00:20:15] one more time. Yeah, no, I mean you can't. If you've wett an appetite, you can't let it pass.
[00:20:20] That could have friend friend. My sister meets Rifted Murdoch at a party and uh, and Jerry Hall's
[00:20:27] is the link and there's a metric trick being done by a little magician.
[00:20:31] And he's one of those people who can just do a metric trick in front of your eyes and
[00:20:34] need to have them how they held it and happened.
[00:20:36] So overcomes a Rifford Murdoch and he takes a 20 dollar note out of Rifford's wallet
[00:20:42] and burns it.
[00:20:43] And he'd get Rifford to sign it first of all and then he burns it.
[00:20:46] The similar tricks like this are done with other people's stuff and the other people's
[00:20:51] are cut in one person's hands and pull that out of another person's pocket or the sort
[00:20:56] of the stuff.
[00:20:56] And you know at the end of it Rifford Murdoch says, where's my 20 bucks?
[00:21:00] He wants it back.
[00:21:03] Now hang on, he gets better.
[00:21:05] That's the metric.
[00:21:06] The magician reached inside his top pocket and pulled it out.
[00:21:09] Out of Rifford Murdoch's top pocket.
[00:21:11] Murdoch was just shocked.
[00:21:12] I mean, I would be.
[00:21:13] I can't.
[00:21:13] He's saw this bloody note being burned while so we thought.
[00:21:16] And they've got in flames and they can see those that's intact and being pulled out of his
[00:21:20] breath pocket.
[00:21:21] But Murdoch's reaction.
[00:21:22] 20 bucks note, where's my 20 bucks?
[00:21:24] He wants it back.
[00:21:25] Yeah.
[00:21:25] Well, he was more clear that the, he'd say I'm going to burn this 20 pound out.
[00:21:30] That's a 20 dollar note.
[00:21:31] Let's just call it the Australian newspaper as soon as you're at that speed.
[00:21:35] That's pretty close.
[00:21:35] That's burning.
[00:21:36] That's burning cash.
[00:21:38] But anyway, I'm too not sure where we were after all of that.
[00:21:41] Oh, we're talking about, yeah, whether it's better to take these various categories
[00:21:48] as, as agents and their behavior and disaggregating the data in that way.
[00:21:55] I'm still not convinced.
[00:21:56] I know, I know the reasoning behind all of that because it's easy to put into a model.
[00:22:01] But I'm just wondering whether in this more complex world we actually neatly fit into
[00:22:05] those categories.
[00:22:06] So for example, there will be people who work who are also catalysts because they've,
[00:22:13] you know, they might have investment property, for example, while they're, but they also
[00:22:17] work as a teacher.
[00:22:18] Well, there'll be, there'll be certainly rough edges and you and I definitely rough
[00:22:22] edges.
[00:22:23] But people who've got a job in, you know, we'll certainly go back to the night in 50s as
[00:22:27] much more obvious.
[00:22:28] People worked on my father working at, started working at Commonwealth Bank at the age
[00:22:32] of 17, retired for all the health of the age of 54 and the same employer all the way through
[00:22:36] that was much common in the 50s than it is now.
[00:22:39] It was a jigger economy and all this sort of stuff they'll try to tell them that you're
[00:22:42] being your own capitalist garbage.
[00:22:43] You've got a trivial amount of capital in a single employer, you're a worker.
[00:22:47] I'm not being paid properly.
[00:22:49] So there are, you know, gray areas too.
[00:22:52] But fundamentally, most people work at, if you say what's the dominant income source for
[00:22:57] most people is going to be a paycheck from an employer, therefore you're a worker.
[00:23:02] If your dominant source of income is from the revenue from a shop or from the ownership
[00:23:06] of whether that's where you might be a capitalist, shareholders, you can actually regard
[00:23:12] them as a separate group because they aren't necessarily innovators.
[00:23:15] But I think you've got down to four or five divisions, four or five categories.
[00:23:19] Then you'd have a realistic foundation for just aggregating the data and the meaning
[00:23:24] for way which people can still comprehend.
[00:23:26] And the reason it's not done is because near classical economics says we're all represented
[00:23:30] evasions, we're all individuals and they leave it out where if you still had the classical
[00:23:34] school and this is the sort of modeling that I do these days, I would be generating in my
[00:23:39] models.
[00:23:40] And I do do this and my models built in my level software.
[00:23:44] I generate workers income, capitalists income, bankers income at least those three.
[00:23:48] And therefore you have a, you know, you're dividing, you need to know that.
[00:23:53] And if my approach to economics with the dominant approach, statistician would be collecting
[00:23:59] that data.
[00:24:00] The reason they don't is because the mainstream economists are doing it and they can't even
[00:24:04] use that data in their own models so it ends up not being collected by statisticians.
[00:24:08] Right, because if everyone was having the sort of sophisticated modeling you're doing where
[00:24:14] you're looking at the behavior of each of those agents, then you'd be calling out for that
[00:24:18] data because you want it as an input into your model.
[00:24:21] But I'm just wondering whether and I can understand why you do any of your models.
[00:24:24] And I still wondering whether most of us, and not even I don't think are that unusual,
[00:24:30] I'm wondering whether most of us would cost boundaries.
[00:24:33] So for example, there are people who are getting the majority of income from a paycheck.
[00:24:38] But they also hold shares.
[00:24:39] They've also got an investment portfolio and the question is how much of an investment portfolio.
[00:24:45] And then at some point does that investment portfolio become their major source of income rather
[00:24:49] than their income from being a worker?
[00:24:52] So do they, you know, do they, they then shift from being workers to being capitalists?
[00:24:57] For example.
[00:24:58] I think you'd find a statistician might say it comes down to rounding error.
[00:25:02] Okay.
[00:25:03] You and I think this is our life experience where used to being people earning income from
[00:25:08] also a crazy source isn't, you know, like I was relying upon donations more than selling
[00:25:12] anything at the moment.
[00:25:14] And so we're a gray area definitely.
[00:25:17] But the majority of people would fit into one class category all the other.
[00:25:21] At every capitalist will say, look, I work and they did write, you've got to do the
[00:25:25] Scourge McDuck stuff.
[00:25:27] You may actually be bolting management, you'll have it.
[00:25:30] You are working.
[00:25:31] I'm kind of no argument, but the majority of you income, the vast majority is coming
[00:25:34] from owning the shop or owning the factory and so on.
[00:25:39] So there'd be gray areas, but they would be rounding error compared to the predominant
[00:25:43] systems, which we should have and then they could have at least in terms of, you know,
[00:25:49] aggregate economic models, which are still built.
[00:25:52] You could at least disaggregate on the basis of income, but that's not done.
[00:25:55] But I mean, can, could you sort of like proxy those based on income?
[00:26:00] Because I would imagine it's easier.
[00:26:02] So for example, I just talking somebody from the Australian Bureau of Statistics this
[00:26:07] last week about this very point about trying to relate employment data to income.
[00:26:15] And we know particularly in Australia actually, but the same in the, you cannot
[00:26:19] show about the US, whether it's quite so advanced, but we know clusters of small households
[00:26:24] what a called the Census Collection districts, which might be, I don't know, what sort
[00:26:29] of like 50 houses, something like that perhaps.
[00:26:32] We have income data for that group collected from the last census.
[00:26:38] So it's a little bit out of date, but in terms of magnitude, we're trying to put everyone
[00:26:42] into a quintile, for example, we could get that based on the location of the person who's
[00:26:47] being surveyed for the, for the labor market data.
[00:26:51] So all of that's eminently doable at an income level.
[00:26:55] As I said before, you know, if you got that and you could get the variation in unemployment by
[00:27:02] income, you'd know people who are on low incomes are workers.
[00:27:07] You know people on medium to high incomes could well be workers but probably also have
[00:27:12] an investment portfolio.
[00:27:13] So perhaps they behave a little bit more like capitalist, but passive capitalists.
[00:27:20] You know, so all of these categories are open up.
[00:27:24] They're, you know, being divided into other forms as well because it's not quite so clear cut.
[00:27:30] I just want to know where the income is actually, there are the real best measure because it's
[00:27:34] easier to access in a way.
[00:27:37] Ask someone what are you, your work or a capitalist, even.
[00:27:40] I think most people would be, I don't know, is it is running out?
[00:27:43] I think most people would be confused and say, well, I'm a bit of both these days.
[00:27:45] Yeah, but you know, if you should watch your predominant source of income as
[00:27:48] from working for an employer or is it from, you know, your own investments and the
[00:27:54] at all, you know, 90% of not get from my employer.
[00:27:57] You're a worker.
[00:27:59] And equally people saying the capitalist, you know, okay, what would you value your
[00:28:03] management skills at?
[00:28:04] And if you want to earn as 10 times your management skills, you're a capitalist.
[00:28:07] And it's also because the scale of the income, they find and sector as always is a source
[00:28:13] of enormous confusion because the way that finance sector's contribution to GDP is measured,
[00:28:19] it's simply about adding up all the incomes inside there.
[00:28:22] So the incomes, we're at Razi's showing it as a larger contribution to GDP.
[00:28:26] And there's a very good argument that's the wrong way to go about it because, you know, if
[00:28:30] the cost of finance goes up, the capacity to do other forms of business goes down, it's actually
[00:28:34] a deduction from GDP, not a contribution.
[00:28:37] But in the finance, sector, you will find people being paid wages of one and a half million
[00:28:42] pounds a year.
[00:28:44] Okay, and that sort of clouds the data some work.
[00:28:47] Yeah, because they workers.
[00:28:48] Yeah, there, there, there, there are the terminal all day trying to get the arbitrage
[00:28:51] advantage between one country's bonds and another country's bond, they're working their
[00:28:54] arse off.
[00:28:55] But they're reducing nothing.
[00:28:57] Okay, so this, this, this, you know, the bullshit dropped things comes up against one
[00:29:00] small.
[00:29:01] So but, but certainly, I'd want to be able to disagree at least in the main social classes
[00:29:05] of workers, capitalists, and bankers.
[00:29:07] And the reason it's not done is because that decisions affect the workforce.
[00:29:11] Just, you can on excitations.
[00:29:14] I forced to serve mainstream economists.
[00:29:16] Are they don't even want to know those income categories exist?
[00:29:18] But he's not just labor is it.
[00:29:20] So it's run across the board.
[00:29:22] So see, we've got to figure four capex investment, for example.
[00:29:26] And we assume that a certain level of investment, we look at them, we got our capex
[00:29:30] investment is increasing.
[00:29:31] That's a good sign.
[00:29:32] That means businesses are investing in more planter machinery.
[00:29:36] So we can expect that GDP's going to go up as a result of that extra investment.
[00:29:40] Because we look at a certain level of investment, we assume it's going to produce a certain
[00:29:44] level of return based on past performance.
[00:29:48] But he really depends on which firms are investing in, which industries, because they'll all have
[00:29:52] different returns.
[00:29:54] What efficiencies there's been in technology in that industry, for example, the might some might
[00:29:59] have let forward.
[00:30:00] And so there's an investment to take advantage of that, whereas others, it might just be
[00:30:04] capex investment that we really is just replet, you know, replacing old war machinery, where
[00:30:09] there's not really been much improvement.
[00:30:12] So this idea that we at the aggregate are assuming future returns based on past returns and projecting
[00:30:18] that into the future is, I mean, it's dangerous for a start.
[00:30:22] Yeah, and there's a lot we end up misleading our social-agricot data like that, which
[00:30:26] should laws the distribution.
[00:30:28] So, and it is feasible to collect that data.
[00:30:31] And like you will find, for example, in America's Federal Reserve economic data base, the
[00:30:38] low-y-fred maintains, there is information there on wages and wages as a share of JDP and so on.
[00:30:44] But it's bloody hard to find.
[00:30:46] It's not easy to find the aggregate data, measure your after.
[00:30:52] Getting the aggregate obscure the distribution of incomes between workers and capitals.
[00:30:58] And that is the major source of income disparities.
[00:31:02] And the one that I worry about is actually leaving out bankers because, again, from my own
[00:31:06] mathematical modeling, rising level of private debt, reduces the income as work as not of capitals.
[00:31:12] So you've got, you know, the workers are getting too much, the workers are getting in getting less
[00:31:17] through no fall to the run, it's because there's so much private debt as a bit of being created.
[00:31:21] So there are so many things we could improve how we think about the economy if we had the distribution.
[00:31:27] Another one is energy.
[00:31:28] The energy source is what they call brown energy or green energy.
[00:31:33] That's going to become absolutely vital.
[00:31:34] But because the economists themselves are not generally set up to analyze that, we don't collect
[00:31:41] the data and don't think about the economy in the right way.
[00:31:43] And we get obscure by our single level which is JDP.
[00:31:46] Because models are complex anyway, even, you know, through the relationship between GDP,
[00:31:52] CapEx employment, all the other variables that used to model the economy,
[00:31:57] can get pretty sophisticated even though all the data that's been fed into it is aggregate data.
[00:32:03] But actually if the aggregate data is adding the truth, it actually makes those models
[00:32:08] pretty worthless, doesn't it? But the alternative is so complex.
[00:32:12] Not as hard, I mean, again, you mentioned statisticians and we have electronic
[00:32:17] point of sale system these days, we have electronic payment systems, etc., etc.,
[00:32:22] the fact that we're still using surveys to find a huge amount of economic data,
[00:32:26] is the sign of how primitive our data collection systems are, not that it's not possible.
[00:32:30] So we have all the technology that could make it possible to actually understand those
[00:32:37] divisions but then it comes back to sometimes you don't want to know.
[00:32:42] And that's, you know, the average person if they knew they can come to disparities that exist
[00:32:47] between them and the ultra-worthy wealthy would, you know, they'd say,
[00:32:52] we need some change around here and that's not necessarily the thing the ultra-worthy want.
[00:32:56] So even though I don't normally buy and they can spruce,
[00:32:59] he theories there's a strong reason why the very wealthy and society are very happy that
[00:33:05] economists don't want to know questions of it about income distribution.
[00:33:08] Right, yeah, because they're quite happy for their multimillion dollar salary to be averaged out
[00:33:12] by somebody who's living on the breadline. Multi-billion, please, let's get it right, not a salary.
[00:33:18] Sorry, exactly. Well, okay, yes, they're income. Well, yes, and, you know, in a fact,
[00:33:23] the more people living on the breadline, the more their average income comes down.
[00:33:28] So where it looks less grotesque. It does. And then, yeah, the old classics,
[00:33:32] though, joke about a million air and the personal and poverty, so the average income is $500,000 a year.
[00:33:39] It's a bit of a caricature but the fundamental thing is the distribution of income matters.
[00:33:44] And the whole neoclassical emphasis is don't worry about the distribution.
[00:33:48] Let's just increase the gross amounts so that ultimately even the poor
[00:33:51] little larger is lifestyle compared to, like, lifestyles of people, you know, the century ago,
[00:33:56] which is what we're all doing in, in, in, in, in the Western society. But the distribution
[00:34:01] does matter and if, if you get to the point where you can't have growth and we well
[00:34:05] and really exceeded that about 30 years ago, then distribution is the only way to avoid people
[00:34:09] starving to death. And that's because we need the distribution data.
[00:34:14] Yeah, we need to disaggregate. So, and if we knew the unemployment right now,
[00:34:18] I'm not saying this is the case, but if it was, if we knew that unemployment was falling
[00:34:22] for high income households, but rising for low income households. And we knew that those products
[00:34:28] that were driving inflation such as sitting in cafes and restaurants were being increased by
[00:34:33] higher income households who's still keeping that job. What would that mean for central bank policy?
[00:34:38] They'd have to, they would have to look at that. They would draw a different conclusion.
[00:34:42] Yeah, which being a classical economist and I'm going to be very good at doing that.
[00:34:45] I need to disaggregate. But will it happen? Well, invested interest. That's the problem isn't
[00:34:51] as well as the, the in this case there's a lot of major fact that definitely like me.
[00:34:54] Yeah. Well, I good stroke Steve, we'll catch you next time.
[00:34:56] I can't. But the debunking economics podcast.
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