New Year’s Resolution: Get a handle on inequality in New Zealand

It is 2014, isn’t that nice.

As I’ve promised, this year I’m going to write more on income inequality (and broader issues of inequality) when I get the opportunity.  With the recovery in the labour market and economy running above expectations, there may be less need for us to comment on macroeconomic issues here – a welcome change from when we started posting and the Global Financial Crisis took root.

However, this isn’t really an issue that an individual, or even a single discipline, can cover in the detail it deserves – so I am hoping that a wider variety of individuals from the broad church of social sciences can come visit us here to deliver guest posts on the issue.

Furthermore, we’d like to think about this in a New Zealand context – we mostly write about the New Zealand economy here (although James is doing a good job covering the UK), and recognising how different the issues are here than overseas is important.

This thinking is important.  As Len Kenworthy says (via Economist’s View):

I believe, as I said earlier, there are good reasons to object to the high and rising level of income inequality in the US. Yet I fear the American left’s recent move to put income inequality reduction front and centre might be harmful rather than helpful. It may foster a conviction that the key to addressing America’s social, economic and political problems is to reduce the top 1%’s share or the Gini coefficient.  That could distract attention from more direct and effective efforts to address those problems.

This is a view I agree with, and one of the key issues I had with the suggestions put forward in the Spirit Level.  Questions of policy are not easy, and trying to flesh out both a description of the trade-offs involved and an admission of the principles of fairness we may value are essential before we can even think of reaching a policy conclusion ;)

 

 

  • Mary

    The theme that NZ inequality is different in both its pattern across time and its level (ie what it means to be at the top and bottom) was one of the key themes of the Treasury piece. It would be interesting to have your critique of their views. http://www.treasury.govt.nz/abouttreasury/higherlivingstandards/hls-bg-equity-aug13.pdf

    In particular, I was struck by the evidence they provided on the extent to which our schools perpetuate inequality. If that is so (and it would be good to see some critical evaluation of it) then it seems to me that is a really major policy issue .

    • http://tvhe.co.nz/ Matt Nolan

      Indeed, cheers for the link I didn’t realise that was out yet!

      Educational mobility is a big issue, and one that a number of people have been concerned about. This is part of the reason why the government has been putting increasing emphasis and funding into the “bottom 20%” in schools I think – something I’ve heard a number of positive comments about from teachers. However, I don’t know enough to give a good comment – I may try to find someone involved in the field to write about it though, as it does seem very relevant

  • Paul Walker

    Matt

    Can you start by explaining why we care about inequality at all?

    Consider two economies, one where the four people in it have incomes of 1,1,1 and 1 and the other where incomes of these people are 100, 1000, 10000 and 50000. Incomes have been scaled so that 0 is the least acceptable level of income, Assume for the argument that 0 means you are dead. If we care about inequality then the first economy is preferred to the second, but really? Do you want to live in the first rather than the second? If not, why not? If so, why?

    • http://tvhe.co.nz/ Matt Nolan

      Hi Paul,

      That is a crux issue for sure – but I don’t know how I can tell people why they subjectively care about what they care about? Don’t we have to understand “what” inequality means and what it entails about other underlying issues before I can answer why we would care. That sort of sounds like the end stage!

      I think we are in exactly the same camp, but I’d articulate our view as saying “targeting something without a reference to what it means and why doesn’t make any sense”.

      • MillAhab

        To Paul – the short answer is social stability, and reduction of risk. Whilst I know the Spirit Level has had a lot of its methodology criticised, that notwithstanding one of their observations is that the top 1% in a more unequal society will in general have less good outcomes than in a more equal society. i.e. if you need medical treatment you will be relying on some of the expertise of the dreaded 99% to help treat you and it is better for you if your income isn’t say 100 times theirs but perhaps 10 times.

        Better to have them treat you without needing to bribe them or have them steal your wallet or extort money from your family while you are being operated on etc. etc. etc. so they can use the opportunity to make up for any real or perceived injustices.

        Even the 1% can’t provide everything they want to each other so better have a bit of trust and stability with the great unwashed….

        To Matt – I believe the OECD recently did some analysis on the % of income/wealth in each country that is attributable to labour and what is attributable to capital (I can’t find it online). Treasury also does these calculations I believe, and the split in NZ is something like (approx) 60% to capital and 40% to labour. Apparently only Mexico, Turkey and the Slovak republic have less going to labour than NZ.

        Why is this? Is it because our productive base is primarily farming/Auckland property speculation etc.? Is it because we don’t tax gains on capital and as a result more activity flows to that side of the ledger?

        I would really love to know if you are able to share any thoughts! :)