Poverty and inequality: does trickle-down economics work?

Two reports published in the last 48 hours provide some really useful background for teaching about policies to address the issues of poverty and inequality in developed economies. The Report of the All-Party Parliamentary Inquiry into Hunger in the United Kingdom was published yesterday, and concluded that because of falling real incomes, delays in paying benefits which people are legitimately entitled to, and sharp rises in fuel bills, many families are "one unexpected bill away from financial crisis".

Last night's News at Ten had an excellent feature on the report, with a stark contrast between rising household costs in the UK and in Germany over the last ten years, and some comment on the impact of inefficient delays in benefit payments; you can find the programme on i-player here, and the report begins at 10.37 minutes into the programme. Note that unfortunately this is only available on i-player for 24 hours, so if you want to use it you will need to do so today, or download it and use it later. If you miss the News at Ten report, or want a written resource as well, there is a feature on the website which analyses the Inquiry's report, with data and investigations into the speed (or not) of payments from the DWP, and rising foodbank use.

A complementary report has just come out today from the OECD which is widely featured, and is the main headline in The Guardian this morning. The OECD has dismissed the concept of trickle-down economics as it found that the UK economy would have been more than 20% bigger had the gap between rich and poor not widened since the 1980s. The report examines the effect of inequality on GDP growth and contrasts free market trickle-down policies which allow for but don't provide redistribution, with greater government intervention to organise redistribution of income; it estimates that reducing income inequality in Britain to the level of France would increase growth by nearly 0.3 percentage points over a 25-year period, with a cumulated gain in GDP at the end of the period in excess of 7%. However, the OECD said that “It is not just poverty (ie the incomes of the lowest 10% of the population) that inhibits growth … policymakers need to be concerned about the bottom 40% more generally – including the vulnerable lower-middle classes at risk of failing to benefit from the recovery and future growth. Anti-poverty programmes will not be enough.” This point is taken as central to the BBC website's analysis of the report, which adds the OECD's warning that lack of investment in education was the key factor behind rising inequality and that fewer educational opportunities for disadvantaged individuals had the effect of "lowering social mobility and hampering skills development". The policy suggestions go further than just suggesting higher progressive taxes (which may affect the higher income deciles' marginal propensity to save, but not so much their marginal propensity to consume), adding the key point that sustainable policies to address inequality lie in education: "Strategies to foster skills development must include improved job-related training and education for the low-skilled, over the whole working life."

LATER ADDITION:

Just to add some balance, or perhaps to add confusion, Tim Worstall, a contributor to Forbes, has responded to the new OECD report by pointing out that this one contradicts the report they recently produced which said that, above a certain point, redistribution does actually harm growth. His blog is here - thanks to my colleague Paul Bridges for finding it.