Sunday, January 26, 2014

Lindsay Mitchell: In anticipation of Cunliffe's speech

Tomorrow David Cunliffe will bombard us with statistics about growing inequality. That can be measured in various ways - household income, individual income or wealth.

The best source of data is the Household Income Survey. Just to provide an alternate view, I've pulled out some of the graphs that show a rosier picture than the one Cunliffe is going to paint.

The first compares the ratio of household incomes  between those in the 11-20th percentile (low) to those in the 71-80th percentile. Inequality fell between 2004 and 2010 and became volatile with the GFC.

Going on to look at individual incomes here's the gini coefficient for NZ over the same period.


Then we can compare NZ's trend to the rest of the OECD





The rest of the developed world is becoming more unequal whereas NZ is becoming less.

Another representation of NZ's lower inequality is shown in the next graph which depicts the share of income received by the top 1% 1920 - 2010


Back to NZ. Child poverty and population poverty rates have declined since 2001 by every measure.




Child poverty rates (%) on four measures

AHC
BHC

AHC ‘fixed line’ 60%
AHC ‘moving line’ 60%
AHC ‘moving line’ 50%
BHC ‘moving line’ 60%
1998
-
28
20
20
2001
37
30
21
24
2004
31
28
19
26
2007
22
22
16
20
2009
22
25
18
19
2010
22
26
16
20
2011
21
25
16
19
2012
21
25
17
18





Population poverty rates (%) on four measures

AHC
BHC
HES year
AHC ‘fixed line’ 60%
AHC ‘moving line’ 60%
AHC ‘moving line’ 50%
BHC ‘moving line’ 60%
2001
25
20
13
18
2004
22
20
14
21
2007
18
18
13
18
2009
15
18
13
18
2010
15
18
11
18
2011
16
19
13
17
2012
14
17
12
16



Overall, if it is possible to generalise such a complex period of change with many factors contributing to income and wealth, a few stand out for me.

The one I rail against so much is the enormous growth of one parent families since the sixties. They are the poorest families and NZ has many of them.

Since the mid nineties real household incomes have grown across all percentiles but faster for those in the higher range. And they have grown faster than wages and salaries. The reason is many more parents - especially partnered parents whose labour force participation rates are higher - work today. But relationship breakdowns make parents poor.

Compared to the sixties - when inequality was lower - reliance on benefits is much, much higher. It was just a given that the welfare state would eventually drive up inequality. The least able would become more so as the disincentive to choose education, work and marriage grew. Yes, the large increase in inequality through the 80s and early nineties was mainly driven by a recession worse than the one just experienced. But even when employment improved dramatically during the 2000s, workless families with dependent children remained so.

That's the problem that needs solving. Getting society to structure itself in ways that are most conducive to building incomes and wealth. Strong families.

I suspect that whatever Cunliffe comes up with won't do the job.

7 comments:

Lee Bee said...

Strong families? Yep I agree but it'll never happen under this current government. Well, for the top .000005% only. The upper-level greed has to end because apart from the fact that it's immoral, it's fracturing our society so badly I'm not sure it can be mended so that we can have your "strong families". So very many ordinary Kiwis feel ignored, exploited and as if they have been "left out" of any of the ordinary benefits of what used to be considered a normal Kiwi lifestyle. :(

Jigsaw said...

But that's the very problem-he doesn't have to come up with anything that could be considered a 'solution' merely state the problem-right or wrong doesn't really matter, many will believe him and then state a solution that will make the envious see a solution-in his terms. He will want to increase taxes-mainly on the 'rich' even though statistically there is proof that doing so doesn't necessarily produce more income for the government. He will seek appeal in all of the class envy and income envy ways that he can.

M Bailey said...

Lee Bee, you need to understand that the wealthy do not have any negative economic impact on the less wealthy in a free market. "Upper-level greed" tells us nothing about the situation we observe and simply reflects your own attempts to reduce wealth inequality to a negative connotation through an empty platitude. If you feel that this is incorrect then please elaborate on your theory of "greed" and how it would be defined, or even measured. In addition you conveniently ignore the factors that contribute to capital accumulation through voluntary exchanges.

As Lindsay points out in her articles on this topic it is more important to encourage conditions that allow everyone's standard of living to increase rather than creating disincentives (and wealth consumption) by government redistribution. The welfare state creates disincentives to work and encourages mendicancy. The immorality of the current situation is the fact that special interest groups obtain private property transfers through political means rather than voluntary means. Again it would be interesting to hear your theory of morality and how it permits coercion and confiscation.

As Jigsaw mentioned it seems that inequality incites envy and it is this emotion that politicians such as Cunliffe appeal to and then offer a "solution". Unfortunately it is unlikely that there will ever be a cure for this unattractive human emotion. The best we can do is work on a society that limits its damage to others.

Piet Smalberger said...

What I don't understand is why there is such a huge outcry against wealthy people - say the 1% group. Norman Gemmell wrote an article in the NZ Herald March 8, 2013 showing that 2% of the tax payers pays 34% of income tax. Top 14% of tax payers pay 96% of the income tax after all the tax credits and benefits were taken in consideration.

The wealthy also don't take the money out of the economy - it stays in the economy - creating jobs, paying wages and taxes?

Anonymous said...

Lee Bee, I would be considered a target in your sights of a greedy person and for 35 years have respectably employed thousands of your fractured society. Despite the care and attention I personally give them most (not all)are overcome by their strong culture and family commitments that continually leads to a family in tragedy. Money is not the problem but education in the basics of NZ society is the best way out.

Give a man a fish and he will have one meal, teach the man to fish and he will provide on going.

Anonymous said...

There is much talk of greed. Greed can be defined as an adjective describing the perceived degree of avarice shown by somebody earning more than he who observes the perception.
An appropriate adjective to describe the attitude of that observer is "envious" - often further described as being green with envy.

Glenn G said...

Piet you are absolutely right, but do think Cunliffe would actually admit such a thing. The wealthy don't get working for families, they don't get benefits, handouts & topups on their benefits, but it is the taxes that they pay that allow people who are less fortunate to take advantage of the billions that are handed out every year. You will never get rid of the green eyed monster that is hugely prevalent amongst so many NZers because as far as they are concerned it is their god given right to sit on their sorry asses, breed as much as they like because why wouldn't you, Cunliffe will give them another 60 bucks a week to breed more unwanted kids that the state will look after anyway because their only obligation is to spit them out, the more kids you have, the more the government will give them & in doing so will keep them in a constant state of dumbness thinking that all their problems will be solved with another $60 a week cause clever David Cunliffe told them so,he is no more than a poor deluded half assed commie.