One of the fun little things about economics is that it works both ways. This is not a reference to some interesting perversion, rather that if A leads to B, and then we see B happening, we can start to assume that A has been happening. Not prove, you understand, for other things could be causing B. But it will be a useful assumption. Equally, if we claim that A has been happening and we cannot see B then perhaps that claim doesn't stand up to analysis.
One example of that second. There's long been a claim in the United States that the workers' wages have not been keeping up with the rise in productivity. This has been asserted so often that it's now something actually believed -- the Biden Administration used to publish a chart of it often enough. Paul Krugman -- and he's got a Nobel which doesn't make him right in everything but does mean we've got to pay attention -- pointed out three decades back that this doesn't work. If wages are not rising with productivity then profits -- the capitalist share of the economy -- must be rising and the labour share, those wages, falling as a percentage of everything.
They weren't when he pointed this out and haven't, since, enough to explain the claim being made. It's therefore the claim which is wrong. For, if this claim you're making is true then we must be able to see this other thing over here. We cannot see that thing; your claim is wrong. On the very simple basis that economies must add up.
To change the example of that same logic. There's something called “Maslow's Pyramid.” Like so much in economics it’s the details people shout about, but the base idea is so simple that if you explained it to your grandmother she'd laugh and wonder why people get paid for saying such simple things.
As our incomes rise we spend them on different things. Once we've got enough rice and fish -- and, yes, I know, Bangladesh, but let me assure you that it really is possible to have enough rice and fish -- then any more income will be spent upon something else.
The pyramid is a listing of those things that we buy at the different levels of income. Food, shelter, clothing at the bottom. A bit higher and we're at the level of different and better foods, stylish clothes, and so on. As we keep going up -- as our incomes keep going up -- then we start buying things we'd never even think of on poverty wages. A motorcycle, a car, holidays. Leisure itself in fact. We'll give up some income simply to have time off -- not something we can do when truly poor because time off means we go hungry.
So, we see that Bangladesh’s GDP growth is slowing down. Part of that is the disruption of recent events. Part of it is that we know inflation was undercounted and that does, yes, matter. What is reported as GDP growth is nominal (before inflation) growth minus inflation to give real growth. If games have been played with the inflation rate then you can see the problem with the reported numbers.
However, this newspaper reported the opening of a cafe serving nothing but hot chocolate. That's pretty far up Maslow's Pyramid, a long way from rice and fish at least. Might not work too but there we are. But perhaps slightly more usefully for us and economics we can see new insurance products being offered. A new form of life insurance as a savings product. Pet insurance even.
These are also pretty high up that pyramid. Pet insurance means that not only do we have pets but we're going to offer them medical treatment. Life insurance means that our current income is sufficient that we're thinking about spreading that over future years. In fact, that we expect to live another 20 years to take advantage of those savings.
One of those predictions of the pyramid is that as incomes -- and lifespans -- rise then we'll spend more upon insurance. Partly simply because as we get richer we are willing to worry about the risks of bad times rather than just suffer them. Partly because we've now the spare income to be able to do so.
More insurances are on offer in Bangladesh. Because economics does work both ways, forward and back, we'd be sensible to assume that the society is getting richer. Yes, yes, those government numbers. But it really is true. A society that buys more insurance is one that is richer -- because it's a society that has solved those earlier problems and can now start to worry about the risks of that future.
Good, eh? The existence, or not, of hot chocolate cafes is something formal economics is less sure about. Despite my own preference for a cup or many, and insurance can take care of itself.
Tim Worstall is a senior fellow at the Adam Smith Institute in London.