It is not a very “happy” new year right now for many in the US. As inflation eats into take-home pay, households have had to cut back on essentials, switch off the heating, buy on credit and in some cases turn to food banks or fuel vouchers.
Naturally, people feel afraid about the outlook. But for those who have lived through past crises, current levels of anxiety can feel strange. At a public Q&A last February, Charlie Munger, the 99-year-old billionaire and business partner of Warren Buffett, lamented that “people are less happy about the state of affairs than they were when things were way tougher”. In earlier eras, he noted, “life was pretty brutal, short. [There was] no printing press, no air conditioning, no modern medicine . . . If you wanted three children, you had to have six because three died in infancy. That was our ancestors.” Writers including the psychologist Steven Pinker and the late statistician Hans Rosling have similarly pointed out that most of humanity’s living standards are dramatically better today.
Fair enough. But that will not stop people feeling angry or scared. One obvious reason is that what matters for economic sentiment is not whether living standards are better than for earlier generations, but how they compare with the recent past. British citizens today might know they live better than their grandparents, say, but what hurts is recent drops. The Resolution Foundation, a think-tank, says that UK households will be £2,100 worse off in 2023 compared with last year.
The other key point, often ignored, is a concept that I like to call the pain-sharing index. Living in a world where economic shocks are shared in a more equitable way feels very different from living in one where some are taking the strain and others are protected by large reserves of wealth. Munger, who is firmly in the latter camp, notes that the emotional impact of inequality is profound: “The world is not driven by greed. It’s driven by envy . . . All [people] think about is somebody else has more now, and it’s not fair that he should have it and they don’t.”
It’s a pity that economic debate does not focus more on this pain-sharing index. Yes, economists such as Thomas Piketty and Emmanuel Saez have used data to illustrate how wealth and income inequality have risen sharply in recent decades. But the issue of whether people feel that economic pain is being shared needs far more analysis. It is rarely covered in opinion polls, though it matters for our politics, particularly as the internet is creating once-unimaginable levels of transparency, the pursuit of luxury is everywhere and in many countries it is becoming harder for young people to find a salaried job or buy a house.
On my travels, I’ve found that different cultures vary enormously in this respect. At one end of the spectrum is Japan, where I lived during the 1990s, one of its lost decades of stagnation. Back then, the economy was ailing. But what was striking was the degree to which social norms spread that pain around. When big companies had to cut costs, say, they typically reduced everyone’s pay, rather than firing swaths of junior workers.
When asset managers pondered the risk of losing money on their holdings of Japanese government bonds, I was sometimes told that such losses would be tolerable because everyone was likely to suffer future haircuts. There was an ideal of shared sacrifice and, even if this was sometimes breached in practice, it helped to maintain social cohesion. A country such as the US, with its deeply individualistic culture, sits at the other end of the spectrum.
Pew Research recently noted that about one in four American parents, and two out of five black parents, struggled to pay for food or housing in the past year. Yet when progressive politicians such as Elizabeth Warren call for redistributive measures such as higher taxes for the rich, this sparks fury from the right. Shared sacrifice is not a dominant ideal. Instead, a mood of bubbling resentment and political antagonism rules.
The UK sits in the middle of this pain-sharing spectrum. The concept of shared sacrifice is idealised in popular discourse, folk memories of the second world war “blitz spirit” and so on. But Britain is also a highly unequal society, and the “miserable” outlook for 2023, to use the term cited in an FT poll of economists, is making this worse. Hence the strikes by nurses, train drivers and others who have suffered real-term pay cuts thanks to inflation and government austerity.
So while nobody ever likes to talk about pain, let alone spread it around, we need to grasp the nettle in 2023. Otherwise, politics will be increasingly poisonous. Which should scare us all.
Follow Gillian on Twitter @gilliantett and email her at gillian.tett@ft.com
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Source: Economy - ft.com
