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.