Economic Reality: A tale of statistics

Lets be honest for a moment. Economics is an mind numbing discipline. For Economists its a bad, but also a good news in a way. Because you can make any argument stick if you just troll around in the data for long enough. To the average person the layman, its little bit different. The global economy must feel like to him a giant Hulking Mass , grinding against the world. Unstoppable and unanswerable to the individuals.

So when your boss asks you to work over time but won’t pay you for it, you don’t argue or demand to be paid, because how could an ant influence conversations between people. Or when you ask for a raise and your boss threatens to fire you, you don’t stick up for yourselves because no raise is better than no job. Threats like these is don’t just function on the level of individuals. In many ways the entire global economy has operated for almost last 40 years. That’s how you end up with a graph like this. Which shows the wealthiest portion of society virtually getting all the gains from economic growth, siphoning money from the middle class and the poor.

img_79537_graph_one.jpg

Take a step back form this for a moment. In a democratic system which  extends the vote to all citizens over 18 , its hard to imagine how such a small percentage of people could convince the rest to perpetuate, that does this.

The truth is there is only one way to achieve this. You have to create an economic theory that makes the exploitation of the people to look like the solution to the problem. In other words you have to tell a story. That’s all economy is. Its a story that we tell ourselves. Its a story that tells us. what decisions to make about our own resources.

So tell me if you have heard this before, that lowering taxes on the rich especially on earned income, deregulating finance and privatizing the public commons is like taking the living out of the shade and into the sun so it can flourish. It is a pretty good story. In fact those are the basics of a story that animated our politics and our economy since Manmohan Singh was our RBI Governor. A story that has produced advocates and prime ministers on all sides of political spectrum.

This story did not help the middle class or the poor, not really their wages have not risen on par with economic growth  in last 20 years, it has risen but not at same level our economy has grown.

But it did give the top 1% greater access to and greater power over all the best  storytellers -politicians, academy and the media. To change the economy you have to change the story. A difficult thing to do considering how much power has consolidated in hands of so few but its not impossible.

Take the minimum wage for example. Right now some countries may have a very complicated minimum wage system; for example, India has more than 1202 minimum wage rates, based on different skills and different professions. In India it varies from 160 rupees ($2.40) per day in Bihar to 423 rupees ($6.35) per day in Delhi as per revised rates in 2015. With effect from November 2009, the National Floor Level of Minimum Wage has been increased to Rs 137 from Rs 7.5 per day (which was in effect in 1968 ). From July 1, 2015, the National Floor Level of Minimum Wage has been raised to Rs 160 per day.

But when you adjust for inflation Rs 7.5 in 1968 comes to  249.49 Rs per day. Almost 90 Rs more(Calculate Here). How can this happen? Because the Indian worker productivity has never stopped growing. GDP of India which was around 52.37 billion dollars in 1968 and now reaching 2,457.75 billion dollars in 2017. But if the minimum wage had kept pace with productivity the daily wages should have been at least 330.75 Rs per day minimum.

But as India allows its states to have their minimum age set on their own, most states have made this higher, with Delhi topping the charts with 423 rupees which is well above the 330.75 Rs threshold. But that is a small club. Of 29 states and 7 union territories only 6 have cleared this threshold. 21.2 % that is more than 28 Crore(280 million ) of people do not make minimum wage in India.

In 2017 , India announced plans to set the minimum to 10000 per month universally across India.  The idea has been already once was stopped in its tracks in 2016. But this is changing, slowly.

This new movement, the fight for minimum wage is part of a new story. A story that believes in finally growing the wages  of the middle class, so that their collective purchasing power, their demand can grow the economy organically, in a way that is not dependant on speculation or financial bubbles. It believes in regulating the abuses of the top 1% and making what should be accessible to all, like education and healthcare, part of our commons again.

But on the other hand their are no shortage of articles, politicians, or studies showing that increasing the minimum wage is a risky gamble or a job killer. There is no shortage of doomsday forecasting that prices would rise.

You have to keep in mind here that, the status quo has a huge interest in maintaining itself. Just like a boss it uses threats to keep the society in line. Here is  a meta – analysis of  pretty much every single minimum wage study –

Funnel_Graph_of_Estimated_Minimum_Wage_Effects

The closer to the top the more precise and accurate the study is. And it shows that all the most comprehensive analysis of the minimum wage show that it would have little to no negative effect on employment levels. And yet it could raise the incomes and standards of living of millions. In places that minimum wage has increased like Telengana, prices have not skyrocketed, instead people that are actually able to buy the things they need, they have consistently increased their productivity.

Minimum wage increases won’t solve all the problems in the economy, not even close. It is just one thing. But the victory of an idea that runs counter to the dominant ideology, is hugely significant.

Otto Von Bismarck said that “Politics is the art of the Possible”.

But I think that sometimes invoking the possible is just another tactic, another negotiating strategy, another threat used on behalf of status quo to restrict  the movement of alternative ideas. The story that this economy has been labouring under for last 40 years is failing. People feel it even if they don’t know why. A moment like this is when alternative ideas can populate the center. So may be it is time to stop leading with what is possible and start leading with what is right.

 

 

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