The thing is, this isn\’t true

In Britain and America, inequality is now back to Gatsby-esque levels.

It isn\’t I\’m afraid. Yes, I know, it makes a lovely complaint over on the left but it just isn\’t true.

Market income inequality is up at pre-WWII levels, yes. Inequality of marketable wealth is (although the composition is wildly different).

But this is to commit Worstall\’s Fallacy. This is to measure before the things we do to change the distribution of incomes and wealth. When what we really want to do is measure the distribution after we\’ve changed it. For only after we\’ve checked how much we have changed it can we decide whether we want to change it some more.

As an example, the TUC worked out the real consumption difference between the top 10% and bottom 10% of households. They took that market income and that\’s about a 30 fold difference. That is indeed high. You\’d find me on the barriades arguing for redistribution if that\’s all that there was. Even if only on the grounds that it would be better to pass some income along voluntarily rather than have the mob come and take it.

Then the TUC works through all the various things we do. We tax incomes of course. We hand out benefits. And we also provide services financed through tax: so the higher income earners are also paying for the health care and schooling of the poor for example.

When you take all of these into account we find (and note these are TUC figures) that the consumption difference between top and bottom is about sixfold. Maybe that\’s still too high: up to you on that. But I think we\’d all agree that 6 x is different from 30 x? And if we\’re to try and decide whether we should do more redistribution then the 6x number is the correct one to be looking at, not the 30 x?

That is, we must take note of the redistribution that is already done before deciding whether we should do more?

Last year, prize-winning economic geographer Danny Dorling gave a speech in which he plotted how Britain\’s annual income had been divvied up down the ages. In 1923 the richest 1% of Britons took almost a quarter – 23.3% – of all income received. After the second world war came a long period of greater fairness so that by 1979 that proportion had dropped to only 6%. Then came Thatcher and Blair and soaraway inequality. By 2006, the year before the crash, we weren\’t quite at a Gatsby-esque divide, but we were heading that way: the top 1% of Britons were taking 15% of all income received in the country. This cash is then turned into houses, shares and other assets so that now the top 1% hold over 50% of all Britain\’s marketable wealth.

Not doing so leads us to that weasel word in there of \”marketable\”. So in this we include houses owned and shares and private pensions (even though private pensions are not actually marketable). But we do not include the value of lifetime subsidised tenancies, state pensions, not even the insurance value of the various benefits we might be able to claim if we need to. And all of these things are valuable. The state pension is an inflation proofed annuity and as such at age 65 has a capital value well north of £100k.

When measuring wealth inequality our researchers bravely decide to entirely ignore all of the things that we do to reduce wealth inequality. It\’s not that they do this by error either: they quite deliberately include private pensions but not state. It makes the wealth gap look larger you see, even though both should be valued the same way, a the capital value of the income stream, like an annuity.

And if we measure such things the way that the TUC did for incomes, including the capital value for all of free education, free health care: the wealth multiple drops from the 100:1 of marketable wealth to perhaps 3:1, 2:1 even, of the ability to consume wealth between the top 10% and bottom 10%.

Which might just be enough redistribution to be going on with really.

38 comments on “The thing is, this isn\’t true

  1. Why do you think that one should take into account State adjustments, when discussing income distributions? The whole point of these things are that they are things done (or justified) as corrections needed due to income inequality. So it seems fairly obvious to me that you would want to exclude them.

  2. Iran, they’re going to use the big fuck-off difference on pre- redistribution income to say “we need to take more money off the greedy batters and give it to those wretched poor people.” Tim’s point is surely that plenty is being done already.

    Tim adds: Not quite. I’m not insisting that enough is already being done (although I do rather think that). I’m making the much more limited statement that in order to decide whether enough is being done we must look at what is currently being done. Only then can we decide whether more or less should be done.

  3. You also have to account for things done on the other side of the equation as progressive taxes and council tax based on the value of a property all serve to reduce the income of the 1% far more than they do the mooching, freeloading 99%

  4. Leftie: But but but, the poor can’t decide what to to with their “wealth” thus it isn’t really wealth – the government spends it on them rather than the poor spending it on them. Err. Oops.

  5. Yes, but what I’m getting at here is, if you’re interested in how much inequality the State has to correct for, you want the pre-correction statistic, not the post-correction statistic.

    Like, if you’re interested in how many people have lost legs in a war, you want to know how many can walk without aid, not how many can walk after provision of Douglas Baders.

  6. DocBud-

    The question from a libertarian perspective under Gargantuan government as we currently have, is how much the 1% are using the State to funnel money into their pockets, some of which they then grudgingly hand over as taxes while complaining about freeloaders.

  7. To what degree are the states redistribution antics the cause of the inequality they are supposed to ameliorate?. Taxes depress production/savings, regulation reduces jobs that would lift the poorest higher. Welfar(t)e traps the poor also.

  8. Oh, they’re an enormous cause of it. The major problem as I see it though is the redistribution at the top of the system, that flew into overdrive when Nixon skipped off the gold standard in ’71 and everyone started this “engine room of the economy” bollocks and starting piling fiat currency into the boilers.

    Take welfare: many people seem to think that the unemployment figure is so high because people are lazy and welfare discourages them from working. But this is not a plausible explanation. People on the dole aren’t entrepreneurs, in the main. They can only take jobs supplied by others. And the jobs just aren’t there, and haven’t been, since the 1970s. It thus seems reasonable to conclude that we have in fact been in a recession since the mid 1970s.

    But taxes can’t be the cause. A certain tax rate merely reduces the available money supply to private sector industry. Prices will adjust to that. If the taxes are spent on nonsense like terracotta armies or wasteful bureacrats, production of goods and services available to consumers will fall- the standard of living will drop- but that doesn’t actually make them unemployed. It makes them employed, but with less stuff.

    So there’s been something funny going on for the past few decades, and I don’t think it’s the usual suspects. Something is making the economy so dysfunctional that it has no employment for millions. That is really a very strange thing.

  9. IanB:”Something is making the economy so dysfunctional that it has no employment for millions. That is really a very strange thing.”

    Not really. Its the combination of three things.

    1) The destruction of the education system so those at the bottom of the pile can go right through it and have gained nothing by the end. This produces a lumpen mass of individuals who are (in an increasingly technical age) unemployable.

    2) The increased volume of legislation controlling what workers can be paid, and how they must be treated once employed. This means employers are less inclined to take on extra workers, and the marginally productive ones are priced out of jobs.

    3) The Welfare system that provides (in certain circumstances) a reasonable standard of living that the individual could not reasonably expect to gain via their own efforts (the Mick Philpott effect). This means ‘some’ of the unemployed aren’t really looking for employment.

    These three factors co-mingle to produce what we have today.

  10. The basic problem we have is growing numbers of unemployable thugs who procreate uncontrollably and who thus have to be supported by the State.

    Like this one.

  11. @IanB > So there’s been something funny going on for the past few decades, and I don’t think it’s the usual suspects. Something is making the economy so dysfunctional that it has no employment for millions. That is really a very strange thing.

    You could make a list of 100 factors which have caused the way we are, and still not nail it all.

    But that’s the whole point – it’s about 65 million people all doing their own thing, and it’s next to impossible to analyse them, or manage them into employment, or anything else.

    Which is why the main issue is government – if government gets out of the way, we muddle through.

  12. Ian B’s Law-

    An economy will have full employment until such time that its government declares that full employment will be a target, from which point full employment will never be possible again.

  13. @Jim

    4) Increased competition for workers at all levels of skill, due to globalization (i.e. freedom of movement and telecommunications). The lower skill level you have (see point 1), the more competition you face.

    5) Housing being seen as an investment instead of just somewhere to live. Causes housing bubbles and malinvestment that could otherwise be used to improve skills, be entrepreneurial, or failing that, consume more freely.

  14. Alex B: both points true. The second being predominantly the fault of the State (again) in allowing Ian Bs money cannons to boom so long and loudly that its obvious to anyone with half a brain that the only way to protect ones wealth is to tie it up in something the State doesn’t control the production of, ie land and property.

  15. Does Ian B’s #11 reference mean that the journalist who wrote
    “The Mayor of London

  16. Does Ian B’s #11 reference mean that the journalist who wrote
    “The Mayor of London s affair with art consultant Helen Macintyre, which resulted in the birth of their daughter Stephanie in 2009, was in the public interest”
    is unemployable? It surely cannot mean a certain blond who has failed to grow up but has earned (over a period of years) more than

  17. Does Ian B’s #11 reference mean that the journalist who wrote
    “The Mayor of London s affair with art consultant Helen Macintyre, which resulted in the birth of their daughter Stephanie in 2009, was in the public interest”
    is unemployable? It surely cannot mean a certain blond who has failed to grow up but has earned (over a period of years) more than GBPm as a journalist, editor and author is unemployable. If people stopped reading he could make a living as a comic actor or teaching Greek.
    There are very few people who are actually unemployable and 99% of those are no problem to Society at large – it is those who *choose* to be criminals rather than to do an honest job that are a problem.

  18. @ #13
    NONSENSE
    Attlee declared full employment was a priority
    The Churchill-Eden-MacMillan government achieved it.

  19. Yeah but…
    Just how desirable is it to turn such a large segment of the population into receivers of hand-outs ? Very undesirable I would say, not just for their sense of self-worth, but also that those who pay taxes don’t get to feel morally superior (strivers vs scroungers etc.) when even arch right-wingers know there are many other factors involved in the difference of salary outcomes.
    Much better to pay people decently in the first place.

  20. Ian>

    I think you got close to the real explanation, and then shied away.

    “People on the dole aren’t entrepreneurs, in the main.”

    I’d say aren’t but could be, and that the major problem is the massive disincentives for them to make employment for themselves. As things stand, someone on JSA, disability, or whatnot is basically barred from starting a business or going self-employed – unless, of course, they have some idea which requires no capital and will support them from the first day of business.

    Of course, that’s not the whole story, but it’s a major part. The other major part is, as I think we all agree, that too many people are essentially unemployable thanks to their lack of a decent education.

  21. @ Ian B and anyone else who cannot remember and has not read up on the second half of the twentieth century.
    Some (much) of the increase in unemployment is due to well-meaning (well, mostly well-meaning) government attempts to reduce inequality. The first such attempt was the Redundancy Payments Act, which was indubitably well-meaning but scared managements in cyclical industries who faced going out of business in cyclical downturns rather than just laying off a minority of workers if there wasn’t enough work to do – their response was to invest in automation in every cyclical upturn instead of hiring more workers. The National Minimum Wage was the worst – it has destroyed the UK textile industry (try finding it in employment statistics post-2003) and eliminated a million or so jobs where the Value-added per hour was less than NMW plus directly-associated marginal costs. New Labour trumpeted that no-one could lose their job because of NMW – well the law said no individual could due to getting a pay rise unless that made the company insolvent and the *whole* workforce unemployed!!
    New Labour’s tax credit/benefit jungle stopped a large number of people from getting jobs because they are/would be significantly worse off as a result and cannot cope with the fall in disposable income after paying non-tax-deductible fares to work, school meals, council tax, prescription charges, sometimes lunches …
    Other factors include the reduced cost of capital, the converse of lower investment returns to capitalists as capital becomes less scarce, which encourages purchases of machines instead of employment of labour, globalisation based on lower transport costs, which encourages the building of much larger factories with a higher output per man = fewer workers per ton/unit, technical advances so that machines can efficiently do a lot of dirty and/or dangerous jobs (e.g longwall mining machines), and the exhaustion of economic coal seams in the UK.
    The policy of the Wilson and Blair governments to boost the pay of public sector unionised workers increased the cost to employers in the private sector and reduced international competitiveness, hence private sector employment as cheaper imports displaced UK products and exports declined but this was *not* reducing inequality – the non-unionised workforce, a majority of whom were lower-paid than the unionised, suffered a reduction in real wages and, simultaneously employment.

  22. @ #23 Dave
    The main reason why those on the dole aren’t, in the main, entrepreneurs is that the entrepreneurs among those made unemployed have become self-employed, eking out a living on the margin. The ONS survey showed that a disproportionate number on those in the lowest two deciles of the income distribution were self-employed.

  23. @ #23 Dave
    Afterthought – someone on DLA or the replacement is not debarred from working or being self-employed or whatever.
    Secondly, how much of an education do you need to clean the streets, toilets – motorway service stations and properties owned by the City of London have clean toilets – empty dustbins (wheely-bins these days), etc?
    Very, VERY, few people are unemployable due to lack of education – it is due to the NMW

  24. One possible interpretation and formulation of the political philosopher John Rawls’ work, A Theory Of Justice, is that inequality can, should, and must exist, if the alternative is that, in attempting to address the problem and to redress the balance, you only worsen things for those who were at the bottom to start with. Of course, as a US political liberal, he thought there was much you could do before hitting the tipping point– his veil of ignorance/original position being described by one wag in practical terms as, “Whoever cuts the pizza has to get the last slice.” His colleague at Harvard, Robert Nozick, took the view that no attempt at redistribution was likely to remain redistributed for long, so long as we all have autonomy in how we make use of what resources we have, and those with a skill or material in demand would in the long run prosper greater than those who don’t, hence redistribution, if it is to work at all (he thought it couldn’t), must be continuous– all we can do is to remove all fears, favouritisms, thefts and extortions, the brunt of all of which falls on the worst-off, from any free market process, the better to allow upward mobility if the person is up to it. This has been the debate for the last 40 years. The thing is, they’re both right, if what you take away from both of them is that it’s in everyone’s interest to set up the fairest possible system that doesn’t screw the poor– but we may never achieve agreement on the details, since Henry George’s paraphrased truism, “The satisfaction of human desires always looks for the greatest return on the least investment– but human desires are infinite,” i.e., “everybody wants a free lunch, but nobody’s willing to pay for how to achieve it” comes into the frame. One despairs it will ever happen.

  25. John>

    In practice, once you’ve ended up on the dole, you can’t get off except by getting a job. What is someone supposed to do in the time between when they stop receiving benefits and start earning? Bear in mind that becoming self-employed or trying to start a business automatically makes you ineligible for JSA. With DLA, in the current climate of ‘reassessment’, you’d have to be mad to risk being judged capable of working full-time because you’ve done a few hours here or there – but that risk is very real at the moment.

    “Secondly, how much of an education do you need to clean the streets, toilets

  26. Oh coq.

    “Secondly, how much of an education do you need to clean the streets, toilets – motorway service stations and properties owned by the City of London have clean toilets – empty dustbins (wheely-bins these days), etc?”

    You’d be amazed how unbelievably stupid and ill-educated some people are. They practically need to be told to breathe. I had a teenager start somewhere I was working a while back who genuinely didn’t know the first things about work – to the extent that no-one had ever taught him that one turns up to work on time, and calls in if sick or whatever. The boss there was very generous, and trained him up a bit – but if it had been down to me, I wouldn’t have bothered, and so he’d have been unemployable.

    The main thing that’s lacking in the education of such people is the idea that you need to turn your brain on and think about what you’re doing – and then some thinking skills to go with it would be nice, but not as necessary.

  27. Ian B above. You comment that the unemployed are not, on the whole, entrepreneurs. True, and that also goes for most people.

    But is a bigger problem that most of the unemployed probably aren’t very good salesmen? Again, few of us are. Even if they are by nature conscientious and hard working, that’s no use until they get a job. To get a job, they have to “sell” themselves to an employer (not sell their souls, just persuade someone to hire them).

    It’s Partly the gift of the gab, partly the temperament to deal with repeated rejection. I reckon plenty of quietly diligent people just aren’t very good at it. And it’s worse in a recession.

  28. @ #28 Dave
    When I was made redundant, despite being recognised as being the best at my job (a couple of years after marketing decided that we MUST have someone running a “small companies fund” despite I and our other experts telling them that this this was utterly the wrong time to start one and allocating me the job, they decided that we didn’t need one and instead of sacking the idiot who said that made me redundant along with my assistant and two other guys who were also worth the odd GBP million, I was badly advised by a so-called specialist in finding jobs hired by my former employer to help us. He knew *nothing* about our speciality and got just one of us a job interview – as a Traffic Warden!! I got a handful of job interviews off my own bat, ignoring him, but got turned down because I was cleverer and more experienced than my potential boss until one of the few guys better than me wanted a colleague for a one-off job; once I had done a couple his partner advised me to register as self-employed, as I have been since (even during a few years when I was full-time employed, as writing academic articles comes under self-employment). The senior of my colleagues, with more business
    nous than myself quickly went self-employed; I haven’t seen the fourth since three of us ran a half-marathon for the office team (we were, technically, still eligible since our notice period had not run out – and, with the help of a young actuary still working for the firm, we won).
    You do NOT know what DLA means: it is an allowance to (partially) cover the extra costs for someone living with a disability. If someone with DLA does get a job, he/she does NOT lose DLA. If you want to talk about ESA, please say so – your comment would be worth debate in that context,
    @ #29 Dave
    Your comments have *nothing* to do with skill levels – they are totally about whether someone is willing to explain a job and earning the money one gets paid involves. Your boss understood – you didn’t. YOU wanted to make the kid unemployable because *you* didn’t want to put in a few minutes effort to train him. You should be ashamed.

  29. John>

    You’ve missed the point with disability benefits. You don’t lose DLA for earning money, but the fact that you are able to do some work is likely to be misconstrued by the current reassessment process as meaning that you are not disabled at all, and so all the benefits will be cut off.

    “YOU wanted to make the kid unemployable because *you* didn

  30. John>

    You’ve missed the point with disability benefits. You don’t lose DLA for earning money, but the fact that you are able to do some work is likely to be misconstrued by the current reassessment process as meaning that you are not disabled at all, and so all the benefits will be cut off.

    “YOU wanted to make the kid unemployable because *you* didn’t want to put in a few minutes effort to train him. You should be ashamed.”

    I was the one who ended up training him and doing his work for the next six months. The fact was, the kid was fucking useless. He hadn’t learnt to work, he hadn’t even learnt to learn, or even learnt to want to learn, so someone who was supposed to take work off my shoulders added more on.

    There were other, better candidates, but the hiring manager was an idiot. The kid was very lucky to jump a queue he should have been at the back of. He had not been prepared by his education to a passable standard. I assumed it was implicit in what I said, but perhaps I should make it explicit that the kid was also illiterate and innumerate. Even so, the big problem I had with him was his attitude – and that’s where the education system had really failed him.

  31. Ian B – “many people seem to think that the unemployment figure is so high because people are lazy and welfare discourages them from working. But this is not a plausible explanation.”

    I am sorry but I do not see why that is not a plausible explanation. Having grown up in a community that did have a lot of uemployment and now has a lot more, it looks perfectly reasonable to me. As can be seen by the fact that all those Eastern Europeans and Asians have come to Britain and got jobs. They want to work. There is plenty of work for them to do. But the native British are lazy and feckless.

    “People on the dole aren-t entrepreneurs, in the main.”

    That is not my experience either. I know a lot of people on the dole who show high degrees of get up and go. Mainly in the form of illegal activity or working on the side – or simply tracking the byzantine bureaucratic demands of being on the dole. Admittedly I also know people who smoke so much marijuana and have been on the dole for such a long time, they cannot get out of bed before 11 am.

    “And the jobs just aren-t there, and haven

  32. Ian B – “And the jobs just aren-t there, and haven-t been, since the 1970s.”

    They are when Chinese illegals come to Britain. They are when Poles come to Britain. They are for everyone except the native born. If this were true, people would have more British nannies and fruit pickers. We do not.

  33. therealguyfaux – “The thing is, they-re both right, if what you take away from both of them is that it-s in everyone-s interest to set up the fairest possible system that doesn-t screw the poor [] but we may never achieve agreement on the details”

    The problem with that is I am not sure we can define what is fair. Take the useless workers Dave is talking about. They exist because the welfare system allows them. By making the gaps between rich and poor smaller, we reduce the rewards for working hard, staying in school, going to University and getting a good job. Naturally fewer people are going to bother.

    How is that fair? Or even in the public interest?

    Also you have to extend this over time. We reward the feckless and stupid and as a result we get more feckless and stupid people. Partly through breeding but mainly I think through education and the lack of attraction of the long term benefits of being not feckless and not stupid. See my point above. We are gifting the future a disaster.

    Finally all this redistribution has a cost – lower economic growth today. I am glad the socialists of the Victorian period lost. I recognise that the poverty they had to deal with was vastly worse than the poverty we have to and so this is very selfish of me. But had they won and wealth had been redistributed, Britain would look more like Bangladesh. In our turn we are gifting the future a poorer Britain than otherwise might have been. I am not sure that is a good idea either.

    The poor are not screwed, the poor mainly screw themselves.

  34. You refer to state pensions and benefits and the implied capital value of these. There are a couple of additional points I would make.

    1 Remember how enormous the capital value is of state employment pensions – a multiple of the value of private pension funds

    2 Remember the above when considering the LibDem policy of a capital asset tax on “mansions” worth more than £2 million. The proposal to tax housing, however grand, while not taxing Monet paintings on the walls of rented luxury flats is inequitable. The value of state pensions should be included too in any capital asset tax, which I am against, but consistency must be demanded.

  35. TW’s self contradictions are becoming terminal: having spent years defending tax avoidance as some kind of patriotic duty, he is now saying that tax and redistribution are absolutely necessary to prevent the economy becoming unacceptably unequal. Having it both ways?Won’t do him any good with kind of right -wing extremism this blog attracts (see above).

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