Vertical and horizontal equity: What are they?

This post is dry.  But if we want to talk about policy and fairness we gotta do some of the hard work making sure we understand how our ethical principles can be measured.  See it as part of trying to build more measures to help us understand arguments around policy given what Sen raises here.  So with that in mind lets define equity:

Equity.  Is the word economists unjustifiably confuse with fairness in order to pay lip service to distributional concerns

Ok I’m being a bit of a dork – in all fairness equity is a good start in asking these questions, but we have to see these measures as only a start!

At the most basic level, when we think about output/income and its distribution in society we consider the average of the income distribution (the mean) and its dispersion (the variance).  If incomes are rising over time as they have been for 200 years, then the variance also rises so we normalise such measures.  This is where inequality measures like the Gini coefficient come from.

The idea of (income) equity goes a step further than just describing the general distribution of income – it considers what happens when we impose an external policy that changes that distribution.  It measures a couple of principles that we may – or may not – value when applying a policy that changes the distribution of income:

  1. Vertical equity:  Captures the proportionality of the system applied – if we introduce taxes are people with higher initial incomes paying proportionally more, if we introduce transfer payments are people with lower initial incomes receiving proportionally more?
  2. Horizontal equity:  When we have two individuals we see as “equals” does this policy system treat them the same way?

With taxes and transfers these measures involve comparing the way people are treated by the tax-transfer system based on a view on what constitutes “equals”.  Specifically, these two concept can only fit together without conflict when looking at income if equals are defined as people with the same income.

Now in this post I will concentrate only on Vertical Equity – we can do Horizontal Equity another time!  And in line with my desire to be a bit more useful I want to focus on how we might measure these concepts, and what we are assuming when we do.

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Pre-distribution and Post-distribution

Note: This is an outline of thoughts rather than some type of persuasive argument – in time I should make an effort to flesh out all the little bits in this, but it is just a run down of my current general thoughts.  Take it as such and feel free to provide constructive feedback 😉

Anyone who reads this who also read my writing pre-2014 will remember that I was a strong post-distributionalist when it comes to social insurance policy.  To the point where the term pre-distribution (or predistribution) did not appear on TVHE when I did a search.

Since then the economic environment has changed and I have spent more time considering these issues.  So have my views changed?  Let’s consider the issue.

Tl;dr No, but I think the terminology can be used more clearly. With regards to redistribution – if our concern is the distribution of income alone pre-distributionalist policies are indirect and inefficient.  But pre-distribution policy prescriptions have relevance when discussing issues of transition – which is essentially insurance from shocks, and the provision of job/income security (as apart from a security net).  Such insurance can be costly, but is still worth discussing in this frame. Furthermore, if we stretch the term pre-distribution far enough it becomes ridiculous – sure the whole study of economics concerns the distribution of income, but the name is used for a subfield for a reason.

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The problem with Economists

I am disappointed with Paul Krugman (ht Economist’s View).

Now don’t get me wrong, I am against almost everything that Trump plans to do.  I am socially liberal, his tax policies (and the sharp cuts and spending that will need to be implemented) will redistribute away from the poor, his tariffs programs will hurt the vast majority of Americans and undermine the rate of reduction in absolute poverty in other low income nations, and his lack of trust in the Federal Reserve is likely to erode independent monetary policy.  Furthermore, his divisive rhetoric and willingness to create “other” groups to blame failures on point to a dark undercurrent within the US and within his administration.

But none of these things suggest:

Still, I guess people want an answer: If the question is when markets will recover, a first-pass answer is never.

Or:

So we are very probably looking at a global recession, with no end in sight. I suppose we could get lucky somehow. But on economics, as on everything else, a terrible thing has just happened.

When these things don’t happen, it will further undermine the credibility of economists – and implicitly tell Trump supporters and opponents that ALL the costs economists had said would occur from his election do not exist!

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#VoteAKL 2016 maps

I had a bit of a play around with mapping the voter return data from the 2016 Auckland local body elections (raw data available here).  I looked at it two ways:

  • What areas had the highest/lowest turnout? (i.e. where is participation high/low)
  • What areas had the highest raw number of votes? (“who elects the mayor”)

Maps addressing these two questions are below.  Note that they don’t include Waiheke, mainly because it’s not part of the “Coastlines” shapefile I used to crop the board boundaries and I decided the effort of separately mapping the board area to the “islands” geographic shapefile wasn’t worth the effort given I have a day job (i.e. I am lazy).  If you are wondering, turnout on Waiheke was very high (58.6%).

Percentage turnout

final-turnout

Number of votes final-votes

The cynicism of age isn’t universal

The ONS finds that older people are far more trusting of others than the young, they just don’t trust the Government. Does this account for Churchill’s apocryphal line?

If a man is not a socialist by the time he is 20, he has no heart. If he is not a conservative by the time he is 40, he has no brain.

Rant: Social justice warriors, the environment, and Green parties

There have been blog posts about centre-Green parties (on TVHE here, here, here), I’m a bit fatigued with politics right now and want to focus on my research so I don’t want to get into that.

One thing I keep hearing, repeatedly, about a centre-Green party is that it doesn’t make sense because it involves hating people.  I hear the same thing about anything people don’t agree with, repeatedly.  Emails, phone calls, on twitter – for some reason people want to tell me how much other people hate people, and so they hate people or me or something.  I don’t know, whenever I hear blind hate it never makes much sense to me – but certain comments have pushed me into a rant.  It is a blog, these things happen sometimes, sorry.

The short version of my post is that the people saying this are disrespectful individuals who have no respect for other people and the difficulty of issues of social justice.  But if you want the full rant click below (and it is a furious rant with more colourful language).  For those who dislike rants (as do I), you could read this old post where I lay out a neat discussion of why social justice issues are core to all parts of the political spectrum, the focuses on “types” of injustice is what differs.

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