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Inequality and Recession in Britain and the USA

Authors

  • George Irvin

    1. was for many years a development economist at the Institute of Social Studies, The Hague, where he taught, researched and carried out consultancy work in Africa, Asia and Latin America until retiring in 2002. At present he is Professorial Research Fellow at the University of London (SOAS) where he works on world trade and financial flows and the EU economies, and particularly on the nature of the present crisis. His most recent books are Regaining Europe (Federal Trust, 2006) and Super Rich (Polity Press, 2008); he has also written regularly for The Guardian (CiF), the Social Europe Journal and has published recent pamphlets for the London-based think-tank, Compass.
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The author wishes to thank Norman Donbey, Alex Izurieta, Mike Rustin, John Schmitt, Robert Wade, John Weeks, as well as various members of The Guardian's New Political Economy group and Compass, all of whom contributed to the ideas on which this piece is based.

ABSTRACT

For two of the richest English-speaking countries, Britain and the United States, growing income inequality has been a persistent feature of the past thirty years, leading some economists to question the cosy assumption that as economic development proceeds, intra-country inequality must ultimately fall. Various hypotheses have been advanced to explain this phenomenon, the best known being that the technological revolution has driven a wedge between skilled and unskilled labour, but none is remotely convincing. Fundamentally, it is a question of political economy whether under conditions of stagnant real wages and a falling wage share, growth in deregulated, finance-driven economies can last. The argument advanced here is that probably it cannot. The profit squeeze of the 1970s having given way to a neoliberal wage squeeze, growth came to depend on asset bubble driven consumption and investment. The Great Recession of 2008 raises questions not merely about neoliberal beliefs, but about whether future capitalist growth can occur unless investment is socialized.

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