Also, careful justifying inequality

You have seen me say that some inequality is “good”, and you have seen Shamubeel say that inequality is “natural”.  It was with this in mind that Shaz told me to post about this comment from Boris Johnson.

Despite calling for more to be done to help talented people from poor backgrounds to advance — including state-funded places at private schools — Mr Johnson said some people would always find it easier to get ahead than others.

He said: “I don’t believe that economic equality is possible; indeed, some measure of inequality is essential for the spirit of envy and keeping up with the Joneses and so on that it is a valuable spur to economic activity.”

I fear that people think the value judgments espoused by Johnson are similar to the ones economists hold when discussing inequality – this is not the case.

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The equity-efficiency trade-off and simplifying assumptions

Given my admission that I am now going to talk more about inequality, it is important for me to show a bit more analytical respect to the concept of the ‘equity-efficiency trade-off’.  This is a term that is often used in economics, and that we often use here, but which on the blog I have only explicitly dug into once before – back in 2008.

The reason I often prefer not digging myself into the equity-efficiency trade-off concept too much is that I fear I won’t dig myself out, and if I do I doubt much would come from it.  It is an overarching concept that exists in economics, one that we have to be sure we consider whenever we ask a specific question.  However, without reference to a question there isn’t terribly much to say.

When it comes to the equity-efficiency trade-off associated with policy and social organisation, it is clear that we cannot clearly separate individual concepts associated with fairness – ideas of inequality and poverty will be inextricably linked, one of the key reasons why I dislike to push by the Spirit Level to solely place focus on inequality.

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NZ inequality statistics: Some of the research

Donal over at Economics New Zealand posted up some OECD figures that indicate that the Gini coefficient over the OECD was the same in 2010 as it was in the mid-1990s, and that it is actually lower in New Zealand.

As I have noted earlier, I am going to start writing about inequality on the blog.  So I have been spending a little bit of time reading about it!

Given this, I’ve realised we can take this analysis a step further.  Bryan Perry from MSD discussed the Gini coefficient, and other indicators, in his introduction for the inequality conference in July.  I wasn’t there – but I know the document is here, and I know Figure D.17 (third page of the pdf) has a graph of the Gini coefficient through time, and a trend line through it.

A couple of things should stand out when we look at this:

  1. The Gini coefficient has more been “flat” rather than “falling” since the mid-1990s if we look at the trend – the drop the OECD recorded looks like it may have been from comparing direct points, which are volatile
  2. When people complain about the large increase in the Gini coefficient they are not talking about the mid-1990s to today – they are talking about the reform period.  This figure shows that there was a very sharp increase in the Gini coefficient between about 1987 and 1992.

So unlike other countries, the complaints are NOT about a creeping increase in inequality through time – but about the level shift in inequality that New Zealand experienced following the reforms.  Ultimately, there is a view by these groups that the “equity-efficiency trade-off” New Zealand decided to make at that point wasn’t the right or just one.

Now I am not sure how we are even supposed to evaluate that claim without thinking about why, and how, inequality has changed.  To give some flavour for this, I’ll comment on a few of the New Zealand specific research papers we have had about this change – if you know any other similar work, flick me a line in the comments 😉

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Some ‘inequality’ is good and other unpopular statements

We have an attitude as individuals to define things as “inherently good” or “inherently bad”.  And when this comes to policy indicators this is dangerous.

Shamubeel has already discussed this when thinking about the broad idea of equality, and so has Sen – although those posts were just us quoting him!  However, a lot of recent discussions have been specifically on a more narrow measure, that of measures of static income inequality [think Gini coefficient, inter-quartile range, 80-20 income range, etc].  We are being told these are inherent bads which must be squashed!  But does this make sense?  Or is some inequality in these measures really a good thing?

Note:  I read this post after writing my post.  It is very good.

Bah, inequality is bad – it’s obvious

Yes, yes, the most common response I get – but you’re here now, so lets have a think about what we are doing. Read more

Quote of the day: Lambert and value judgments

I was excited to see James post about value judgments this morning – as that is exactly what I was about to throw a brief post on!  Partially motivated by this:

But also motivated by the fact I’ve been reading a bunch of ‘normative economics’ recently.  Here in the book “The Distribution and Redistribution of Income” by Peter Lambert is a quote about value judgments (with reference to, in this case, income inequality measures)”

It is hard to avoid making (often well-concealed) value judgments when assessing inequality

The points he goes on to make regarding valuing income distributions given certain measures are relatively well known, but worth repeating: Read more

Inequality is natural

The moot in a debate organised and run by VILP (Victoria International Leadership Programme) students on 15 October 2013 was: “Is inequality natural?”

I was on the affirmative team with Harry Berger and Even Bain, two smart and articulate Victoria students.

We won the debate 49-43. Once you adjust for the home ground advantage to the negative side (organised following the inequality symposium in Victoria earlier in the year, and debate opened by Max Rashbrooke, author of Inequality: A NZ Crisis – link to book here!), I reckon that pretty much counts as a land-slide victory 😉

Natural versus equitable

Our argument was very simple. Inequality is natural – as in it is in nature. We appealed to biology, evolution and human behaviour. But that it does not make it fair or equitable. We have to appeal to our humanity and empathy to deal with negatives of inequality – but those are defined in many cases by normative judgements that society has to agree on.  Read more