If only Owen Jones understood the merest smidgeon of economics

Yes, of course Owen Jones is going to complain about a public sector pay freeze. It would, however, be useful if he had even the merest, slightest, knowledge of economics to back up his indignation.

Reports suggest the chancellor, Rishi Sunak, will resuscitate divide-and-rule arguments, pointing out that private-sector workers have been worse hit than their public-service counterparts. Instead of aiming anger at the government for causing another lockdown and disruption to those working in retail or hospitality, we’re being asked to direct our venom at our neighbours who’ve been required to go into work every day to keep our schools, councils and social services running. If Britain had a rational political culture, the debate would centre on driving up the wages of private and public-sector workers alike, ensuring everyone has a decent day’s pay for a decent day’s work. Instead we are left with a race to the bottom.

Well, we could start with the actual numbers, which is that public sector wages have been rising recently, as private sector fall. Mutter something about fair shares of the burden and all that.

But Young Owen’s making a larger mistake here. GDP is about 10% below where it was. Therefore all incomes, in aggregate, need to fall by 10%.

Now it’s entirely true that GDP isn’t everything that’s good in this life and it’s not the only societal target we should have. However, GDP is indeed all value added in the society as measured at market prices. By construction it is also all consumption at those same market prices and also it’s equal to all incomes in the country.

This is simply the definition. OK, we might quibble a bit about GNI instead of GDP, but for the UK that is a quibble. That number which is now 10% lower is all incomes in the country in aggregate. That is, all incomes in the country must, in aggregate, be 10% lower.

How should we divide this pain? We could have 10% unemployment and so 10% of the people have no income. Although given the existence of the welfare state, which provides an income to those without a job, we’d need unemployment to be much higher than that. Perhaps we could wipe out all those corporate profits? Except, once we account for the labour share of the economy, subsidies and taxes on production and consumption, self-employed income, we find that capital share is about 20%, half of which is depreciation. So, we’d need to wipe out all profits from all investment. At which point we’d have no investment moving forward, something that would significantly lower the incomes of those who come after us, or ourselves in the future.

The logical and civil - even just and fair - manner of dealing with this is that all incomes fall a bit. Rather than some incomes disappear entirely.

Sure, we can shout that the economy, and thus all incomes aggregated, shouldn’t have fallen. Even, that we’ve a plan we’ve not told anyone as yet which would have prevented it. But we are where we are. GDP is 10% smaller, all incomes aggregated are 10% smaller. Now, who gets the pain?

It’s not, to put it mildly, obvious that those who work for the state shouldn’t have to carry any of that burden, is it? Especially since public sector compensations - so including terms and conditions, job security, pensions and the rest as well as wages - are significantly higher than private sector already. Isn’t it progressive to insist that the richer among us should carry rather more than in proportion of society’s burdens?