Martin Wolf is facing reality this morning, which is something he is, to be fair, more willing to do than most economic commentators. In an article in the FT, he says:
So long as growth remains so slow, no amount of prudence will solve the UK's difficulties, including its fiscal ones. A stagnant economy is also a “zero-sum” economy, in which more for some groups inevitably means less for others. The politics of such an economy are bound to be fraught. Ultimately, either fiscal discipline or democracy itself is likely to collapse.
It's good to see that he might be catching up with the current fiscal reality of austerity.
Except, of course, he is also wrong.
His first sentence is true. It can even be argued, in the very short term, that his second sentence is true. A static economy is 'zero-sum'. But the consequences of redistribution from those with wealth to those who lack it are not static, and so his 'truth' only holds in the very short term. Thereafter, such a redistribution is bound to promote growth, because the redistribution comes from money that has been saved, and which is therefore not in use in the economy, into money that will be spent, thereby generating growth.
The conclusion Wolf offers is, therefore, wrong, with one caveat. Redistribution shatters 'zero-sum' economics because the marginal propensity to consume of those with money in the economy changes beneficially. The politics of this will, in that case, only be fraught if those with wealth do not wish that to happen, even though they will very obviously benefit from it.
Three obvious questions follow. First, why would they want to do that?
Second, why does Wolf not know this will happen?
Third, why isn't he promoting redistribution if he does know that will happen?
So let me add this question, which is, fourth, why don't economic commentators want to discuss the benefits of the redistribution of wealth? Could they have another agenda?
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Surely it’s all about virtue signalling?
The virtue these days is all about personal independence, personal agency.
Even public services are based on meeting ‘YOUR’ needs as opposed to ‘you and everyone else’ – public sector workers now work for ‘customers’ not people who ‘need things’. This gives service users an agency that they simply have not got because it is the state who is paying – or should we say more likely not paying for.
To be honest it is a rich persons dream being sold to us, since the rich live off what they don’t have to recycle into society (as taxes, wages, interest and other rentier benefits) and get benefit in ways the rest of us will not.
The truth is that society is inter-dependent. Strikers in football don’t score goals, wingers in rugby don’t score tries without a team. Even tennis players need a coach and support.
But you would not think it, because we are so hyper-individualised.
Much to agree with
@PilgrimSlight. Some of it may be about “personal independence”. However, the money which allows disabled people to achieve even a basic level of dignity – Personal Independence Payment – is being made more difficult to qualify for, and is under threat for those who already claim it.
Sorry, a hobby horse of mine.
Otherwise I agree.
Hannah – thank you for your comment.
PiP is a phrase to me which is just marketing to be honest. Again, it is signalling that you and society have this wonderful thing called PiP, and that disabled people are being looked after. Ah, lovely!
So, as a result, the rest of society thinks that you are being looked after adequately – or even God-forbid for some of them – better than they are. Just because of a label that aligns with the times.
But you know that the reality of it all is different, more hoops to jump through and even less money? I know that too from my work with disabled tenants in rent arrears in local authority housing.
I wonder how much the government paid to rename/re-brand what should be yours anyway?
Personally I think your treatment is disgusting and shameful. It is not the product of anything remotely close to calling itself a ‘democracy’.
It’s a mobocracy – a rich mob who wind up poorer mobs to get them to fight with disabled people like you and amongst the other poor for a few titbits from the top table.
It’s appalling. I don’t know how you do it.
Thank you.
That’s also the case in big finance, which is why when firms hire a star (and perhaps his or her immediate team), the star rarely shines at the new gig. I saw it at HSBC, Barclays and Deutsche. Firms, especially outside the US, have a culture that is stronger, if perhaps not as tangible, than people think.
This is absolutely spot on. It hits the nail on the head.
“[R]edistribution is bound to promote growth, because the redistribution comes from money that has been saved, and which is therefore not in use in the economy, into money that will be spent, thereby generating growth.”
And this will benefit the wealthy, who might fear losing money. That’s because they will retain their relative wealth within the community, their absolute wealth will decrease less than they think because of growth, and they will benefit from the public goods supported by taxation and redistribution.
This, to me, is the key message to try to get across. I don’t know how to do that, but this post will help.
“So let me add this question, which is, fourth, why don’t economic commentators want to discuss the benefits of the redistribution of wealth? Could they have another agenda?”
I would refer you back to a comment I made a short time ago – “Growth is the antidote to redistribution”.
They do have another agenda, that is to protect the wealth of the rich. Once discussion of redistribution is allowed, it will become blindingly obvious that it is the way forward, that it will encourage growth (all the things the Govt. say they want), and will be hard to put back in the box.
Those commentators have picked a side, and it is not mine.
Isn’t there a risk of confusing income and wealth here? The austerity beloved of Rachel Reeves and her Conservative predecessors is all about current spending, basically income (and literally so for those dependent on disability benefits). If total spending is held constant, because there is no growth, then the zero-sum situation applies.
From conversations with others, there is a widespread belief that any money spent by government affects the economy equally. People don’t accept your proposition (which I share) that money supporting those at the bottom of the income distribution is likely to boost the overall economy more than tax cuts for those at the top. I find it difficult to argue my side of the case because I don’t have actual evidence that a greater proportion of money received by the less well off goes into the UK economy than that by the wealthier.
It does seem feasible that those with higher incomes put more of it into savings which become economically inactive. Even there though, observation of those I know (up to the income levels of hospital consultants) fails to show obvious correlation, peoples propensity to save seems to depend on personal cultural factors more than their income though we can reasonably assume those on the poverty line aren’t saving. But with the majority of income being spent, the question then becomes about how much of that spending is directed within the UK economy which is hard to assess. Even for the basics which form a higher proportion of expenditure for the less well off, a quick look at the origins of things like fruit and veg show that a surprisingly high proportion of spending is going to other countries’ economies.
Richard’s case above states redistributive taxation would take money out of savings (economically inactive) to boost income of the lowest paid (spending into the economy). Assuming we are talking about taxation of incomes that is only true of the fraction that would have been saved. I imagine that the wish to put money from savings to better use is one of the reasons some people advocate for a Wealth Tax, but I agree with your previous arguments that one would be impractical; however I suppose aligning things like CGT with income tax would produce a modest boost to the money moved from savings into the active economy.
Have you not asked those hospital consultants about their million + pension pots. If they think they do not save they are deluding themselves. But the wealthy wish to do that.
I had quite consciously ignored pensions as a form of savings in what I wrote above, largely because I admit it is something that confuses me.
Retirement in the UK seems predicated on most people having occupational (or personal) pensions. The State Pension is too low, to the extent that people without their own additional pensions often need to claim benefits. For that reason I find it difficult to class them the same as wealth in savings.
I recognise that there are those (I assume a small minority) who make use of the particular tax status of pensions to boost their discretionary savings. But it is hard to criticise on that basis members of the NHS Pension Scheme, whether doctors or care assistants, who pay the standard contractual percentage of their salary into the Scheme and (I think I am right in saying) are unable to alter that.
The other confusion is the way pensions are given a value. Defined Contribution pensions have an intrinsic value in that they consist of a “pot” in some sort of investment for which there can be a market valuation. But the traditional Defined Benefit schemes like that of the NHS can’t be given a value in the same way. When I retired a few years ago the USS used an arbitrary multiplier to determine whether I had a tax liability, and I assume that was true of you too last month. If you were trying to invent a market valuation on a particular date you might use annuity rates but those are variable, the exact same benefit could double or halve in paper value over a few years. Alternatively I suppose you could use total lifetime contributions (employee plus employer) to come up with an equivalent valuation to a DC pension but that would no doubt generate yet another different paper value.
Because of those complications I found it difficult to mix pensions with savings for the purpose of this discussion, but I recognise it is a topic which might merit a closer examination.
I admit I see them as the same thing – just tax incentivised, excessively in some cases.
Prem Sikka in “Left Foot Forward” 2 days ago:
“ The bottom 50% of the population has 5% of wealth, and the bottom fifth has only 0.5% of wealth. Progressive taxation, equitable distribution of income and wealth did not get any mention in the Chancellor’s statement. A relentless squeeze of the less well-off won’t help with rejuvenation of the economy.
“The package of benefit cuts, job losses and tax rises (income tax thresholds remain frozen) will reduce incomes of the poorest half by 1.5% compared to 0.5% fall for the richest fifth. Yet the Spring Statement removes billions from the economy.
“Progressive taxation, equitable distribution of income and wealth did not get any mention in the Chancellor’s statement.
“Just 685,500 Britons in the richest 1% have wealth totalling £2.8 trillion. In comparison, approximately 48m Britons (70% of the population) have a total £2.4 trillion. The richest four Britons have more wealth than 20m people combined”
My old friend is right, as usual.
Prem Sikka is another one of my thought inspirators. Talks so much sense and well explained.
An old friend
Help me out here (I don’t pay for the FT and don’t have the article as context): You quote from Wolf’s article “more for some groups inevitably means less for others” – it doesn’t explicitly reference redistribution from the most well off to the least well off. I read it that he was saying that austerity will lead to a further concentration of wealth for the already wealthy — then we get to where we are. In which case we can argue with his last sentence: Ultimately, fiscal discipline fail, resulting in a collapse in democracy itself. In that case, much to agree with.
And then there is your point – what about the alternative redistributive outcome (which we haven’t seen for at least 20 years) ……. I think presenting both options and their likely outcomes is useful — rather than saying he is ‘wrong’ – if anything his assessment is ‘incomplete’. The bit he has covered identifies a negative outcome for society (we agree) – and that trickle down won’t work / isn’t working.
In that case, his assessment is a great opener for a more complete assessment. Much to agree with, etc……
He was definitely pro sending wealth upward
This was his conclusion:
This suggests that the government must be far more radical if it is to improve growth prospects substantially. Dramatic reductions are needed, for example, in the cost of constructing infrastructure. Sharp improvements are also needed in public-sector productivity. Particular attention must be paid to promoting innovation. The need to expand spending on defence could help in this regard. Pension reform, wisely done, might greatly improve the availability of risk capital. Reform and simplification of the tax system is also essential. Last but not least, the government should avoid any serious unforced errors. Its decisions to raise the cost of labour through higher taxation, higher minimum wages and much tighter regulation could prove huge mistakes.
Thank you, Richard.
Richard: “He was definitely pro sending wealth upward.”
Have readers and Richard not read the FT’s week-end edition? These goodies featured don’t pay for themselves. That’s why Martin Wolf and other hacks, including the Grauniad, are paid to advocate flooding up.
🙂
Their magazine has always been offensive
I don’t know why so many people are opposed to a redistribution of wealth because that’s what Governments have been doing on behalf of the rich for decades.
Remember trickle down economics? Or Liz Truss giving huge tax breaks to the super wealthy so the money can be redistributed upwards?
Our Chancellor likes to think of the UK economy as a household budget, so let’s use a similar analogy. Imagine you’re an entrepreneur and you want to get rich. Do you:
a) come up with a business plan which involves getting a loan from a bank so you can spend money on hiring staff, purchasing equipment, paying rent/rates and tax
or
b) cut back dramatically on how much you spend on Netflix, coffee and heating?
or
c) take out a huge loan, put the money in envelopes and push them through the doors or all the wealthiest houses in the neighbourhood to ensure the money trickles down to those who need it most?
I agree with the point ref redistribution. I’d suggest that the other side of the coin is investment – in key infrastructure. One (redistribution) offers the possibility of a more level society, the other a society with fit-for-purpose public serivces. I hope this is not off-topic but:
https://www.theguardian.com/business/2025/mar/31/thames-water-names-us-private-equity-group-kkr-as-preferred-partner
The article contains laugh-out-loud stuff from Thames (the idea that KKR will “invest” is laughablein its sefl).
Still, I am sure that Wolff as a Thames customer (one supposes) is all in favour – after all markets have worked well so far – haven’t they?
Agreed
Thank you, Mike.
I’m glad that you have alerted.
The first time that I came across KKR was not in a business publication, but a glossy one. Mr and Mrs Kravis were featured at some glamorous NYC ball. It explains where the money from private equity goes.
Gary Stevenson explains why this happens. Because mainstream economics won’t talk about the effects of money distribution.
He is very pointed. People like him from a working class background who study economics, are best at prediction. They are hired and paid sumptuously by the banking industry for their predictive talent. People who come from families with the resources to study mainstream economics for 17 years are the ones who end up in publications and in policy in government, people who have spent all that time studying models and *assumptions* that ignore wealth distribution.
It says rather a lot that the individuals who are better forecasters of economic trends, don’t rely on the assumptions used generally regardless of which side academic economics of all stripes cling to blindly.
I think Mr Stevenson is smart, genuine and dedicated. He is very focussed on inequality, but broadening out to look at history and address media fomentation of division in society. Good man. I wish he would look at Richard Murphy’s tax report as I’m sure he would soon appreciate the wisdom and practicality of it.
I have posted a link on his latest Youtube
Richard
If there’s significant unemployment, then you can get growth just from more government spending: there’s no need to do more redistribution for growth reasons.
If there isn’t significant unemployment, then more redistribution does increase the level of consumption, but that has to be offset by lower capital formation. The people now supplying extra consumer goods and services can’t also be building houses or factories. In the longer term this will lower the growth rate: more jam today means less tomorrow.
If you’d still like more redistribution for Robin Hood reasons, OK understood. But don’t argue that this will somehow increase the growth rate, when the opposite is the case.
Oh dear. My heart sinks when I read comments like this.
First, who knows for sure if we have unemployment or not?
Second, whoever said that we might only one try one policy at a time? Why is that your suggestion?
Third, why do you assume that the economy is a zero some game? Do you really think that?
Why don’t you, I suggest, look up from your blackboard and neoliberal textbooks, and observe the real world, and think about policy that might actually work. You might be more useful if you did.
The National Debt is the wealth of the country. Except that it is distributed so unevenly, that the economy is not functioning as it should. The less well-off have little disposable income to spend, the wealthier classes may have products, but no-one to buy them.
Redistribution of wealth puzzles me.
1) Is it simply a tax raid?
2) Will companies be expected to forfeit some of its capital?
3) Would Basic Rate taxpayers have wealth taken from them?
4) Would poor people see any of the money raised?
Can you come back when you have done some research of your own?
I am not Google.
A key argument used by many here is that point “money that has been saved, is therefore not in use in the economy”. This is not right.
All savings which are not fivers under the mattress, are invested in the economy . Savings held in a bank/building society improves their liquidity and ability to lend more to business and house buyers. Savings held in ISA’s are invested in real businesses as shares and providing much needed capital for large businesses to survive. Individuals pensions are mostly invested in business and government bonds (supplying the treasury with liquidity) etc.
If savings and savers are attacked by government even more, there will be severe unintended consequences. I am certain.
a) Bank savings are not lent. You are desribing capital, not deposits
b) ISA shares are always second hand i.e. already in issue – the company gains not a penny
c) Timny proprtions of pensions are invested in real economic activity
You really are very, very wrong and need to discover what really happens. I have done that.
Everything I’ve read about what banks do with deposits say that part of these deposits is lent out. it actually forms part of their capital. Not all is lent, as a proportion is held in reserve for their day to day needs.
This lending makes money for them, for which the depositor will receive interest. If they do not make part of these deposits work for them, then it would be commercially difficult to pay interest to depositor.
If they do not use part of depositors money commercially, why do their bother trying to attract deposits at all?
I don’t profess to have your knowledge or experience, but if what I am saying is untrue please help me understand.
Derek
Please do not embarress yourself.
This was taught way back in the day.
Read this. https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy The Bank of England says you are wrong