Why We’re Getting Poorer

As we shift into a new era where many of the things we take for granted are under threat, it is worth bearing in mind that these things can always be challenged…

A report released earlier this year concluded that 1 billion Indians have no disposable income, a number that has been stagnant for a long time. India’s recovery since the pandemic has taken what’s called a K-shape, where the rich get richer but the poor face stagnation or even decline. The top 10% of earners in India now receive over half of national income – up from around a third in 1990 – while the bottom half receive only 15% of national income, down from 22%. India’s middle class has been squeezed, facing flat nominal wages and therefore seeing their earnings halve in real terms over the post-pandemic inflation. Savings have been run down while borrowing has risen. Meanwhile, those at the top have been spending in an expanding market for luxury items.

India is an example of a country that is often billed as a rising star and where statistics on poverty and health have improved. This isn’t entirely false: India has grown in recent years and boasts many achievements, including their impressive universities and their successful satellite mission to Mars. Yet even before the pandemic, false optimism hid the truth about India. Far from being in advanced tech, 9/10 jobs created in India between 1991 and 2019 were informal, casual, irregular employment, such as the pedicabs that transport tourists around Delhi. Stats from the world bank imply that virtually every household in rural India has a personal toilet; scholars familiar with the country – or anyone who has watched that scene in Slumdog Millionaire – will know that this doesn’t pass the laugh test. Excessive optimism based on flawed statistics is not unique to India, either. The World Bank figures put Egypt down as having 1 per cent poverty, yet its own government – having observed the large number of people who scrape by in slums in precarious employment – put the figure at one-third of the population; something similar applies in Turkey. 

The Brazilianisation of the world

These realities will resonate with Latin American countries, who have long struggled to escape the trap of being highly unequal, middle-income, and not fully industrialised. Many famous images of absolute poverty alongside outright mansions come from this region. Javier Milei, the PM of Argentina, has taken drastic steps to cut the state and reduce waste to attempt to get his long-suffering country on a sure footing. While he has seen some successes along the dimension of macroeconomic aggregates like inflation, poverty has risen and many face increasing hardship, an all-too familiar bind for the people there. Drawing from their neighbour’s similar experience, analyst Alex Hochuli coined the term Brazilianization to mean ‘modern but not modern enough’ facing relative stagnation in an economy which is nowhere near on track to joining the ranks of the rich countries. Hochuli notes that Brazil’s entrenched elite, living in luxurious fortresses with advanced private security, actually benefit from the lack of industrialisation because it means they get to keep their housemaids. 

The idea of Braziliansation may give us some clues as to what is happening elsewhere, including in the West. Why is it that despite so much overall material progress, so many incredible new technologies, and undoubted gains in areas like health and education, many people across the world feel like their living standards are falling? The answer is that our economy is not designed in a way that benefits the average person. Most people aspire to having stable employment, being able to support their families, having a few treats here and there, having access to public services and various facilities when they need them, and ultimately not having to think too much about the economy. If our economy were designed to reflect this desire, it would look very different.

As it stands, our economy suffers from two major shortcomings. Firstly, it is uneven: from the rise of billionaires and their seemingly unlimited influence from the devastating social effects of areas which are economically ‘left behind’, we fail to reign in the rich and powerful in order to benefit those who are struggling. Secondly, it is dysfunctional: our economic system simply fails to work properly, and this has a negative impact on everyone, rich and poor alike. For example, if you name a country, I’ll name a country that is regularly talking about its housing crisis: one 2023 report found that 94/94 housing markets across the rich world were some variety of “unaffordable” From the extortionate rents in London and Manhattan to the shanty towns of South Africa to the ‘favelas’ of Brazil, housing seems to be a source of disquiet everywhere.

The struggling anglosphere

Growing up in the UK and coming of age during the 2008 financial crisis, I can safely say that as an adult, I have never experienced a ‘good’ economy. From the Great Recession to austerity to Brexit to the pandemic and its fallout, we’ve lurched from crisis to crisis as living standards have fallen for the average person. According to the Bennett Institute of Cambridge University, England lags behind other European countries in basic physical and social infrastructure, with the availability of things like public transport, GP practices, cash machines, post offices, museums, and chemists declining across almost all English areas. Median wages have been roughly stagnant for decades and earlier this year, the Joseph Rowntree Foundation released a report showing that the bottom 40% of earners have lost out since the pandemic and will be even worse off by 2029. 

Across the pond, economic performance in the USA makes for a striking contrast and one year ago, may even have seemed grounds for optimism. Following huge public investment by the Biden administration, there was a revival in some towns, with GDP growth above 3%, unemployment historically low, inflation falling faster than other countries, and real wages rising – even at the bottom. Yet disappointment with the economy remained high, with surveys of consumer sentiment and perceptions consistently showing a divergence between objective and subjective indicators. Economist Kyla Scanlon coined the term vibecession to mean that there was a recession in the air, but not in the statistics. Conclusive explanations for this puzzle are hard to come by, but it likely has something to do with the fallout from the pandemic, with the cost-of-living crisis, fears about the future, and the withdrawal of income support all playing a role. Regardless of the causes, the backlash was felt politically when Donald Trump was re-elected in 2024.

Trump is obviously not the answer. He campaigned on a promise to help working class people and rural areas by bringing back manufacturing through tariffs: a workable policy if pursued carefully, as Biden arguably did. However, Trump has threatened tariffs on numerous countries seemingly at random with no clear plan except, perhaps, intimidation. His proposed tariffs on car parts, for instance, are simply going to increase prices and disrupt an intricate supply chain which goes back and forth across the continent of North America numerous times. Ironically, Trump had campaigned directly on eggs being too expensive but since he took office their price has increased even further, along with coffee, which economist Dean Baker has taken to calling the ‘war on breakfast’. In other words, Trump responded to Americans feeling poor by making them even poorer.

Uneven leads to dysfunctional

What the USA shows is that those areas of our economy and society that are positive and worth protecting are actively endangered by the areas that are not working. Trump is obviously a billionaire himself, but his wealth is dwarfed by that of Elon Musk, who has inserted himself into the head of the Trump government. Musk’s wealth – along with that of many other tech billionaires – almost doubled when Trump was elected. In Government, they’ve targeted a whole bunch of programs known as USAID, which help people across the world with health and nutrition. If the policies are upheld, it will quite simply lead to hundreds of thousands of avoidable deaths among the poorest people in the world. They are making similar cuts to programs within America such as social security, and they even seem to be eyeing the possibility of abolishing the Department of Education. It’s looking like the high economic growth in the US will soon be a thing of the past, in one of the most bizarre acts of economic self-harm since Brexit.

Although we don’t enjoy the political drama of the US quite as much over here, there are policy similarities. It has been said that we in the UK inhabit a ‘doom loop’ of poor economic performance, leading to higher debt, and to cuts, to further stagnation, and so on. Currently the Labour Government are addressing the UK’s low labour force participation – itself a complex combination of mental health, poor employment opportunities, and changing attitudes towards work – by cutting disability benefits again. Even narrowly, this is a false economy: when you make cuts to care you don’t make the need for that care disappear, and the burden usually falls on women, so you are likely to get women withdrawing from the workforce, which is obviously bad for the economy and for tax revenues. According to economist Emma Holten, evidence from Denmark shows that these types of cuts don’t usually help the budget and we in Britain should know, because we’ve done them before. 

This is a choice

As we shift into a new era where many of the things we take for granted are under threat, it is worth bearing in mind that these things can always be challenged. Early on, the Department for Government Efficiency  or ‘DOGE’ were trying to withdraw a special type of peanut butter for malnourished children in Africa; this was successfully reversed, as have many other such attempts to withdraw these USAID policies. There has been a huge boycott of Tesla products as a result of the actions of Musk and Trump, with both sales and the share price tumbling, which is putting a lot of pressure on their project. Finally, as a result of Trump’s behaviour, the EU, Mexico, Canada, Ukraine, and the UK seem to be aligning more closely. We can hope that this makes all of us get our act together and build a better future.

Follow Cahal’s YouTube channel Unlearning Economics , where he covers economics, politics and statistics with a critical perspective.