JOHANNESBURG, SOUTH AFRICA
THE FAMOUS French economist, and author of the bestseller, Capital In The 21st Century, Thomas Piketty, is expected to arrive in South Africa this week. He will deliver the 13th Annual Nelson Mandela Lecture at the University of Johannesburg on the 3rd of October.
Piketty comes here at a time when the entire world is obsessed with income inequality – which is his area of expertise. Politicians, academics, the media, ordinary citizens, all lament the current high-levels of income inequality. Many of them claim it is one of the causes of social upheavals we hear about and see every day.
Piketty’s talk on income inequality will resonate with many. South Africa has one of the highest income inequalities in the world. Currently, the nation’s Gini coefficient, which measures income distribution (with 0 representing perfect equality and 1 representing perfect inequality), stands at 0.65; in contrast to America’s 0.45, China’s 0.47 and Brazil’s 0.53.
Most people are bothered by these statistics; and as a result, they now call for the reformation of the free-enterprise system. They are disgruntled by greedy CEOs and the top 1 percent who, in their view, take all the income gains at the expense of the middle class.
In the United States, the notion that the middle class is declining has gained traction. Those parroting this false rhetoric refer to declining household incomes and wages as indicators that the capitalist system has benefitted only a few, the top one percent.
But these people should do themselves a favor – they must stop for a few minutes and think.
In his well-written and intelligent piece, titled ‘The myth of wage stagnation’, published by CNBC last year, Daniel J. Smith, an assistant professor of economics at the Johnson Center at Troy University, argues the claim that incomes are stagnant is “wrought with holes and erroneous interpretation of the data available”.
Looking at just average hourly wages in the United States, adjusted for inflation using the Consumer Price Index (CPI), shows that earnings increased only 5.58% since 1964. But, this statistic and others like it, are misleading because they do not factor in the new forms of growing employee compensation, and they overstate the erosion of purchasing power. “Once these contributions are taken into account, a much more clear — and positive — picture of the average incomes surfaces”, he writes.
When you look at total compensation – which is your salary, plus benefits such as healthcare, paid vacation time, hour flexibility, improved work environments and even daycare, you come to a conclusion that actually, earnings have increased more than 45% since 1964, not by 5.58%.
But to people like Piketty and his followers, this sensible interpretation of statistics doesn’t mean anything. Logic and common sense doesn’t mean much to them.
It’s not only Daniel J. Smith who has written about this ignorance by people like Thomas Piketty. Thomas Sowell, the legendary American economist, has written a lot about income inequality.
In his column, ‘That top one percent’, Sowell contends the top 1% is an income bracket, it’s not people. Americans in the top 1% in a given year are not there permanently. I may be in the top 1% this year; but it’s quite likely I won’t be in the top 1% next year. People’s incomes fluctuate overtime.
Yet these top 1% people are written and spoken about as if they are an enduring class. How irrational.
Also, people with this obsession ignore the fact that age is a factor on income inequality. It takes years to acquire the skills and knowledge needed to have a high-paying job. People older than sixty years will have higher incomes than those in their twenties; because they have worked longer, have experience, and accumulated a lot of money during their working years. Is the relationship between age and income that difficult to understand?
Here in South Africa, like in the United States, this obsession over income inequality persists. People don’t even give themselves time to think about this; they hear rhetoric and they run with it.
It will take a long time for South Africans to reduce income inequality; because, twenty-one years after the end of apartheid, millions of people remain unskilled with minimal education. And all these points I have discussed above on income are relevant to South Africa.
The great news is this: In a new democratic South Africa, significant economic strides have been made. As Leon Louw of the Free Market Foundation South Africa explains in one of his writings, the once ostracized and repressed Black communities have made remarkable economic progress.
To speed up this progress, South Africans should fix their education, open up and deregulate markets to create employment opportunities. People will need skills, jobs, experience, to climb the income ladder. Those who argue we should take a portion of A’s income and give it to B are totally wrong. That is not the solution – that approach will violate human rights.
Thomas Piketty will speak at a time when many South Africans move far to the left. Government’s interventionist policies in the economy, over the past seven years, have been astounding.
I think that his senseless and illogical message, will resonate with most people, who themselves don’t believe in sanity.
I tweeted days ago that I wish this French economist would speak about how we should address poverty, not income inequality. Because that’s what bothers me – millions in this country are jobless and live in poverty. And income inequality has nothing to do with poverty. PM
© PHUMLANI M. MAJOZI