Why stagnation matters

The IFS’s Paul Johnson says (pdf):

Real median household incomes will be no higher in 2015–16 they were in 2002–03, more than a decade without any increase in living standards for those in the middle of the income distribution. We estimate that in the period 2009-10 to 2012-13 real median household incomes will drop by a whopping 7.4%.

History suggests this could have nasty consequences. Benjamin Friedman has shown that (pdf):

Economic growth—meaning a rising standard of living for the clear majority of citizens—more often than not fosters greater opportunity, tolerance of diversity, social mobility, commitment to fairness, and dedication to democracy…But when living standards stagnate or decline, most societies make little if any progress toward any of these goals, and in all too many instances they plainly retrogress.

A new paper provides micro-level evidence to corroborate this. It looked at the impact of lottery wins on personality and found that money makes us nicer people:

Unearned income improves traits that predict pro-social and cooperative behaviors, preferences for social contact, empathy, and gregariousness, and reduces individuals’ tendency toward negative emotional states.

The danger, then, seems clear. Economic regress might mean social regress - more conflict, anti-socialness and intolerance.

But herein lies a puzzle. There seems little evidence - so far - that this is happening (Clarkson and tram woman are of more interest to the psychiatric than the social sciences). Crime hasn’t risen much, the far right is a nugatory force, and people seem to be quite happy; I‘m not sure whether August‘s riots count as evidence here or not.

Which raises questions. Are there some mechanisms which offset the above tendencies and so cause economic stagnation to not have such adverse effects - some combination of peer effects and path dependency perhaps? Or am I misreading the evidence? Or will things change as I fear? I honestly don’t know. But I do know that this, rather than a few tweaks to fiscal policy, is the key issue.

Comments

[Metatone]

Surely there's a lag time.

1) 2007 is a critical date because even though the stats may say stagnation started earlier, up until then the optimism was clearly still around.

2) 5 years is a long lag time, but that's a good sign, we're doing much better than the 1930s on the welfare state side of things. It's when the Tories get serious about chucking people off benefits and we get larger groupings of people with nothing to lose that the discontents starts to breed into politicised and/or criminal disturbance.

3) No-one seems to be sure what the August riots meant, but I think it's worth saying they cast at least a little doubt over the "happiness measurements." Probably sampling bias as much as anything.

[Metatone]

Good point in the Polly Curtis Guardian blog on a similar theme: the pain will hit more people when mortgage rates go up.

Estimates are that a lot of the tracker deals expire over the next couple of years. Many of the high street lenders will be looking to put these people onto their current rate (4-6%) which will come as quite a shock...

[haslitt]

Yes, surely a latency effect. Plenty of goodwill around following a decade of social investment, it takes time for the effects you're talking about to change people. Eventually though... War, I expect.

[David Gillon]

Actually disability hate crime figures are showing clear increases in Scope's regular survey, and incidents frequently include references to disabled people as benefit frauds, the scrounger rhetoric of the media hitting home.

Disabled people now perceive ourselves to have lost all the acceptance as equals we'd gained over the past 30 years, and for many of us our acceptance has never been worse. Many disabled people are quite literally scared to go out on the street.

[ortega]

They say someone said: we know what you are, now we are talking about the price. In that case, 7% down and tolerance, fairness and democracy seem to be at risk. Looks like a very cheap people to me.