Why are we getting poorer - behavioural economist weighs in

Photo: AFP

US president Donald Trump's yoyo moves on tariffs and the retaliatory response from trading partners has created global tumult, and stoked fears the world's biggest economy could be on the road to recession.

But economic volatility has been the norm for some time, from the global financial crisis, austerity, Brexit, the pandemic, supply chain issues, the cost-of-living crisis and to where we find ourselves currently.

So where did the global economic system go so wrong?

Dr Cahal Moran is behavioural economist and a fellow at the London School of Economics, and told Nine to Noon why he believes the world finds itself in its current state - an economic turmoil that seems to never go away.

"For a long time, the economy has been structured in a way that, there's average growth, there's GDP growth, there's some technological developments," he said.

"But a lot of the things that people really care about that really signify economic stability and security, from housing to good jobs to health and education, we've kind of neglected those areas.

"I think that we're seeing that unfold, and we've seen a lot of political backlash to that as well."

Moran agreed with GDP pioneer Simon Kuznets that his measure isn't comprehensive and shouldn't only be taken at face value.

He said it is just a measure of production and is not a measure of the health of the nation.

"The criticisms of it are quite well known now, but it's completely neutral on whether or not the thing happening is good or bad, right?

"Felling forests to produce timber can increase GDP. If you get a divorce, there are legal fees. That'll increase GDP. So, it's not necessarily the case that attracts well-being."

So, why are we poorer?

Costs of services that used to be provided by the state have crept up, which Moran said have been particularly noticeable in the United Kingdom.

"The thing is that a lot even a lot of these things that are still provided by the state, the services kind of started to deteriorate a bit," he said.

"This is very true in my home country of the UK. We've had austerity for such a long time and student fees, they were introduced 20 years ago or so and they went up.

"They tripled just after I went to university...there's been more and more fees introduced into public services and services that matter to people, but also, they've just been cut down."

Moran said a report released by Bennett Institute in Cambridge found that facilities across the UK are disappearing, such as doctors, pharmacies and local community centres.

Despite that, fees and prices are still increasing, while general services continues to deteriorate, he said.

"I think that's why people feel like they're getting poorer because you go to a high street and it's empty and it's desolate and there's just not a lot going on there," he said.

"There's not a lot of opportunity, there's places boarded up, and that's again something that's not necessarily going to be captured by GDP."

Moran's introduction to economics was as a high school student in 2007 as the world was devastated by a global recession.

He said while unfortunate, it helped shaped his idea of economics.

"It was the biggest recession in 70 years at the time, and it wiped a lot of people out, and it threatened people across the globe and at one point, it really seemed like the cash machines were going to stop spitting out money," he said.

"That's what people thought before there was this sort of massive rescue package. But then we had, in my opinion, completely the wrong response to the financial crisis, completely the wrong response with austerity. We failed to address the issues that had been, exposed by the financial crisis."

"I think our economies across the world had been quite reliant on the financial sector. They've been quite reliant on the housing bubble and the credit that came with it, and credit cards were propping up consumer spending."

Moran said the financial collapse put a spotlight on just how little remained, and the lack of growth in industries and public services became even more evident.

"I don't think the financial crisis, as terrible as it was, had to end up where we are now," he said.

"I think we could have responded to it much, much better, and we probably could have fixed, ameliorated a lot of the problems that have festered until today and have only got worse."

Those problems include globalisation, he said.

Moran said while it was a separate issue, it was part of the same ideology, such as free markets and free trade, which would work in the financial sector.

"Globalisation meant moving a lot of a lot of industry to poorer countries, as we know, China being usually the canonical example, but also a lot of other countries like Bangladesh and Vietnam and we exported things like clothes production and toy production.

"What that meant really was that a lot of the manufacturing hubs and the industry that held a lot of towns and communities together, in countries like the US and UK, but really across the world...even in Brazil, this was this was true. So, it's not just a rich world thing.

"A lot of these industries kind of suffered...it's not like I want to reverse the growth in China, that's not what I'm saying.

"But again, we just didn't do enough to ameliorate it. I think between the financial crisis and then the response to it of austerity with deteriorating public services and lacklustre growth, and also this issue of these communities that have been left behind for a very long time under the guise that a rising tide lifts all boats, free trade is going to work, we just got a lot of political discontent."

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