And the Resolution Foundation committs Worstall\’s Fallacy once again

The super-rich – the top 1% of earners – now pocket 10p in every pound of income paid in Britain, while the poorest half of the population take home only 18p of every pound between them, according to a report published this week by the Resolution Foundation thinktank, which reveals the widening gap between those at the very top and the rest of society.

Umm, no. No, this simply isn\’t true.

Or market incomes it is true: but you will note that we have a taxation system in this country. As well as a benefits system. \”Posckets\” and \”takes home\” refers to the income distribution after the influence of the tax and benefits system. Whether you mean colloquially or accurately.

Resolution\’s calculations do not include the impact of benefits and tax credits,

So, in studying inequality they\’re ignoring all of the things that we already do to reduce inequality. And this is what FCA Blog has called \”Worstall\’s Fallacy\”.

It is of course very interesting to see what the market distribution of incomes is. But before we decide what we might want to do to change it we need to look at the effects of what we already do to change it.

Those effects being substantial. The TUC calculated the figures recently. Top 10% market incomes are 30 times bottom 10% market incomes (by household). That is indeed a large gap.

Once you figure in the tax system, the benefits system, and the public services on offer (notably, education and health care) free at the point of use financed by that tax system we end up with a consumption difference of 6 times.

Which is the more important number? Well, clearly to my mind at least, if we\’re trying to look at how we might make consumption more equal via, say more tax and benefits, we\’ve got to consider how much we equalise it already through tax and benefits. Just looking at market incomes doesn\’t tell us enough.

To give an extreme example. Say that we used the tax and benefit system to actually equalise consumption. But market incomes were still 30x. Could we use that market income difference to argue for yet more equalisation of consumption? Well, no, not really, we couldn\’t, could we?

Quite: when discussing inequality we need to take account of what we already do to reduce inequality. Which the Resolution Foundation don\’t do thus they\’re tosspots.

And do you know what really gets my goat?

In its report, Squeezed Britain 2013, the Resolution Foundation will focus

The report\’s not out yet but they\’re trailing their results in the press already. So we can\’t go and look up exactly how the fuckers are lying to us. They just get to spread their bile across the political landscape without being called on it.

And for that they\’re cunts.

14 thoughts on “And the Resolution Foundation committs Worstall\’s Fallacy once again”

  1. Quite, SE. The notion that all the top 1% are super-rich is a fallacy. We are at the poorer end of the 1% here in Aus, I can make it on professional fees alone but my company means that we make it comfortably. We have a very comfortable life but we could not survive 6 months without an income unless we started nibbling into our retirement nest egg. To my mind, to be super-rich means not having to worry about where your next dollar is coming from or worrying about whether or not you can maintain your lifestyle in retirement. We may get there, we may not. I suggest the super-rich would be the top 0.0%.

  2. DocBud

    “Maintaining your lifestyle in retirement” seems a somewhat subjective definition of being super-rich or in the 1%.

    If you have a large £10m house and only the state pension for income you’d run out of cash in weeks.

    If you had a medium sized £1m house and £9m in the bank/investments you’d be extremely comfortable.

    You’re either in the top 1% or your not. You can’t claim that because you can’t afford to run three houses, a yacht and insure your art & classic car collection out of income that you aren’t “rich”.

  3. You’re either in the top 1% or your not.

    That’s not what he was complaining about. He’s quite happy he’s in the top 1%. He’s claiming he’s not super-rich. Essentially, he’s got to continue working – or he’ll get rapidly poorer. Personally, I don’t have anything like his 6 months of maintaining life-style immediate savings. And my retirement “nest egg” is wholly illiquid.

  4. It makes a big difference whether you mean the top 1% by income, assets or liquid assets. Are there any convenient reference figures?

  5. In the same way that the BBC will call that idiot from the IEA, or someone from the “Tax Payers” Alliance, ‘experts’ .

  6. Thank you, Dave.

    Any chance you could get a certain Tim Worstall to read the article, in the faint hope it might persuade him to shut the fuck up about carbon taxes?

  7. Well, Shinsei1967, I honestly don’t believe I’m rich (monetarily that is, I’m married to my soul mate and therefore am rich beyond any measure). My point is that the bar has been set too low. The top 0.1% are the ones with yachts, Lear jets, multiple mansions, etc. We drive luxury cars, fly first or business and live in a $2 million house so people may think we are rich, but, were the current down turn in the mining industry to extend for a few more months, it could still turn to dust for us. A paper multi-millionaire could quickly turn into someone who is bankrupt. For that reason I don’t feel rich. Tomorrow I’ll be away from home working a +12 hour day. If that work dries up our lifestyle will evaporate. (Still, at the end of tomorrow I’ll still polish off half a bottle of moderately expensive red wine before doing it again the next day).

    I’m not complaining, the risk to me is worth the potential rewards which is why I do what I do (I insist on minimum 6 weeks leave per year), but it can all come crashing down which is why I don’t feel super-rich.

  8. @DocBud

    To some extend, I hear where you’re coming from. I, inexplicably, tickle the top 1% in terms of earnings – yet I am relatively young and not asset rich. If everything came crashing down then I could live, very modestly on my savings for, perhaps, ten years. That’s nice to know.. but I’m not rich.. not like (say) a retired accountant married to a GP.. with the pension that flows from that. Those people know that they will always be able to live comfortably.

    So yes, there’s a difference between a high earner who’s not yet built up that security, and someone who’s truly ‘set for life’. It’s the latter who is rich.. the former just hoping to be.

    That said, if the lifestyle you are not sure of maintaining is one of first class travel and luxury cars, then I do think your frame of reference might be a little warped. Sure… you might not be able to do those things for the rest of your life… but the fact that you feel that you can afford to do them now does, rather, indicate that you’re rich. Or you feel rich. Or you’re elegantly reckless.

    I could buy an Aston Martin tomrrow, and fly first class to New York on Wednesday. But I’m not gonna. I’m not rich enough. I have the cash, but I need it for other things. That you don’t feel you need your cash for other things.. isn’t *that* what makes you rich?

  9. TTG,
    I’d argue why would I want to be earning what I’m earning and not enjoying the benefits? Flying economy (no chance) and driving a Great Wall instead of a Range Rover might be worth 200k which would not alter our retirement plans. If things continue as they have averaged over the last 6 years then I’ll be able to retire in 4-6 years maintaining our lifestyle irrespective of our current spending.

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