So we’re better off with 3 cows rather than 7?

Cjcjc: er, no.

We are, however, better off in a situation where the spectrum of values for cow ownership is, say, 25-35 cows across all citizens with a relatively even distribution, rather than (as now) where the range is 0-3,000,000 cows, with 90% of the citizens owning less than 3 cows. Particularly in a post-industrial nation, it’s a much better idea to have spending power across your whole society than it is to have highly-concentrated asset ownership in the hands of a small, managerial class of plutocrats.

The usual Conservative case for income inequalities is that income inequalities are an inevitable consequence of the incentives necessary to reward risk taking, enterprise and personal effort. The poor, it is often claimed, could readily become more prosperous if only they would work, or work harder, or exercise a bit of initiative and willingness to learn. After all . .

“Government figures show only 15% of white working class boys in England got five good GCSEs including maths and English last year. . . Poorer pupils from Indian and Chinese backgrounds fared much better – with 36% and 52% making that grade respectively.”
http://news.bbc.co.uk/1/hi/education/7220683.stm

“Though white children in general do better than most minorities at school, poor ones come bottom of the league (see chart). Even black Caribbean boys, the subject of any number of initiatives, do better at GCSEs”
http://www.economist.com/world/britain/displaystory.cfm?story_id=14700670

Try this recent Guardian report about a new OECD publication: Going for Growth:

“The chances of a child from a poor family enjoying higher wages and better education than their parents is lower in Britain than in other western countries, the OECD says”
http://www.guardian.co.uk/business/2010/mar/10/oecd-uk-worst-social-mobility

The evidence concerning the ill effects of inequality is not quite as clear cut as some people would suggest.

On the issue of inequality and happiness for instance there is much debate. The point made above and in the report is pretty much the Easterin Paradox – Within a country rich people are happier than poor people, but as countries get richer happiness levels stay the same. The reason for this is that what determines happiness is where people are in relation to others and not the absolute level of material well being they enjoy.

However, this idea has recently been contested by Stevenson and Wolfers: Economic Growth and Subjective Well-Being: Reassessing the Easterlin Paradox They make the claim that:

Using recent data on a broader array of countries, we establish a clear positive link between average levels of subjective well-being and GDP per
capita across countries, and find no evidence of a satiation point beyond which
wealthier countries have no further increases in subjective well-being. We
show that the estimated relationship is consistent across many datasets and is
similar to that between subjective well-being and income observed within
countries. Finally, examining the relationship between changes in subjective
well-being and income over time within countries, we find economic growth
associated with rising happiness. Together these findings indicate a clear role
for absolute income and a more limited role for relative income comparisons
in determining happiness.

As for The Spirit Level, whilst it is an engaging read there are numerous problems with the methodology used. These problems are discussed at the links below:

<a href="http://super-economy.blogspot.com/2010/02/spirit-level-is-junk-science.html"
<a href="http://super-economy.blogspot.com/2010/02/spirit-level-is-junk-science-part-deux.html"
<a href="http://super-economy.blogspot.com/2010/02/breaking-wilkinston-admits-there-is-no.html"

Apologies – if anyone with better technical knowledge than me could fix the links in the post above that would be great.

“The evidence concerning the ill effects of inequality is not quite as clear cut as some people would suggest.”

Really? The extensive evidence from many countries presented in the recently published book: Richard Wilkinson and Kate Pickett: The Spirit Level – Why More Equal Societies Almost Always Do Better (Allen Lane 2009) seems very convincing to me.

“What they find is that, in states and countries where there is a big gap between the incomes of rich and poor, mental illness, drug and alcohol abuse, obesity and teenage pregnancy are more common, the homicide rate is higher, life expectancy is shorter, and children’s educational performance and literacy scores are worse.”
http://entertainment.timesonline.co.uk/tol/arts_and_entertainment/books/non-fiction/article5859108.ece

Hi Bob, I’ve too have read The Spirit Level, and yes it does seem very convincing. However, if you dig a little deeper cracks begin to appear.

I would encourage you to read the links I provided above that discuss the methodology used by the authors.

They also make a schoolboy howler about the regional minimum wages. The J Rowntree number is pre tax. So all you’ve got to do is stop taxing the working poor and the minimum wage covers the amount needed not to be poor.

JQP @2:

We are, however, better off in a situation where the spectrum of values for cow ownership is, say, 25-35 cows across all citizens with a relatively even distribution, rather than (as now) where the range is 0-3,000,000 cows, with 90% of the citizens owning less than 3 cows. Particularly in a post-industrial nation, it’s a much better idea to have spending power across your whole society than it is to have highly-concentrated asset ownership in the hands of a small, managerial class of plutocrats.

Ah, but what do we do when someone fails to feed their cows properly and they all die, leaving them with no cows? Do we give them 25 cows taken from other people? What happens if someone successfully keeps their cows happy, free from disease and breeding well, leading to them having 100 cows – do they now have ‘too many’ cows and should be reduced back to 35? If either are true, what incentive does anyone have to look after their cows at all? And if nobody cares for their cows, pretty soon all of the cows are dead and there’s nothing left to redistribute.

The failure of Blairism was that it assumed that the mechanisms of inequality were unstoppable and that post factum amelioration (spending the late 90s surplus and the debt of the 00s on public services) of the problems caused would be sufficient. They were happy enough to see the rich take a larger proportion of the wealth produced by society, so long as they got to spend some of the tax revenues produced. When these revenues turned out not to be enough, they carried on spending anyway.

Pedent alert!!

Doing call it relativism, call it relative poverty or whatever. Relativism is a well used philosophical term already! I really don’t think we need to muddy the intellectual waters further than they already are!

Tim @8:

They also make a schoolboy howler about the regional minimum wages. The J Rowntree number is pre tax. So all you’ve got to do is stop taxing the working poor and the minimum wage covers the amount needed not to be poor.

More or less, yes. IIRC, the People’s Budget exempted everyone below an inflation-adjusted income of £125k or thereabouts from the tax. Taxes on the rich were then commensurately higher. People have been howling and moaning about the LibDem’s suggestion that just maybe, people earning 10k and under should be out of the tax system. I wonder how they’d have reacted to suggesting that anyone earning five figures rather than six should be untaxed on their income, and that the super-rich should stump up a fair share?

BobB:

The above argument is somewhat devil’s advocate, but it does capture the essence of the problems that we have when we think of income distributions as being fixed rather than dynamic.

Nonsense. The Cow Index as I described it is about assets including disposable income, not income in the abstract. They’re which are very different economic mechanisms. None of this has ever been about redistributing incomes more evenly around the country; it’s been about redistributing wealth, that is assets.

To give you a simple example: the Baby Boomer generation have incomes varying from 0 to $bignum. Typically, however, they own a minimum of one house and more frequently three or four. Assets versus income. It is the irrational distribution of assets, actual wealth, that the Cow Index illustrates. Otherwise we’d have a mandatory living stipend (producing a minimum level of income) instead of a benefits (which provide temporary income so as to avoid loss of assets).

The failure of Blairism was that it assumed that the mechanisms of inequality were unstoppable

Here, however, I agree with you 100%. Blair bought Thatcher’s line, that a vast wealth gap was necessary.

But how come the OECD finding that social mobility is lower in Britain than in the other OECD countries?

See the Figure 5.1 posted in the relevant OECD report: Going for Growth:
http://www.oecd.org/document/51/0,3343,en_2649_34325_44566259_1_1_1_1,00.html

What the OECD figure shows is the extent to which sons’ earnings reflect those of their fathers’. Among the countries shown, the association is the greatest for GBR (=UK) – in other words, there’s less social mobility in Britain than in the other countries.

This ONS chart and analysis focuses on the changes in income distribution in Britain since the 1980s:
http://www.statistics.gov.uk/cci/nugget.asp?id=332

Mobility is as much to do with education and aspirations as it is with wealth (yes, I know there is linkage, but it is not the same). Perhaps the fact we have a crap education system, and have had for years might be a problem where mobility is concerned?

The vast majority of people don’t want to be wealthy, they just want enough so that they can get by in life, pay their way and maybe have a little left over for luxuries. Most people will be perfectly happy just having enough to support themselves. To me, that should be the focus of the state when it comes to closing the gap between rich and poor, we don’t need parity, we just need to make sure that even the worst off in our society can support themselves.

@ 11….the numbers almost exactly match.

JRT necessary income of £13,900 is post tax and NI £11,400.

Min wage 37.5 hours a week for 52 weeks of the year is £11,300.

Raise the min wage by 5 p an hour, make the personal allowance (and NI limit) that minimum wage level and we’re done.

No one working full time in the UK is in poverty. Excellent!

@ 14. The problem with that as the state focus, is that you then bring “the poor” up to the same level (in terms of living standard if not capital assets) as the working/lower middle class. For example, if a single parent has enough children she will end up with net benefits (including housing and various freebies/subisdies) that equal or exceded those of many working families. This causes resentment and destroys social cohesion, and in economic terms, removes the motivation fo large swathes of the population to work at all, as well as setting up a potentially exponential welfare bill.

Worth noting that the Spirit Level has been pretty comprehensively refuted: http://super-economy.blogspot.com/2010/02/spirit-level-loses-more-credibility.html

There is much more robust correlations that lack of economic freedom harms people more than mere inequality ever could.

12. Bob b. Britain was the first country to industrialise. Other countries started to industrialise using more advanced technology requiring a better educated workforce , examples would be the heavy chemical and steel industries of Germany post 1850. The expertise of the German manufacturing expertise was seen in their weapons production as late as 1944. In the 1920s and 1930s , the car companies offered massive wages of $5/wk because they produced high value products compared to agriculture. That is why so many African Americans moved to Detroit from the south of the USA.

Britain post 1945 tried to keep labour costs down but resulted in over manning with regard to unskilled and sem-skilled using dated technology. Post 1945 Britain should have invested in modern technology using a smaller but more highly educated and trained workforce. Approximately two thirds of union memebership was unskilled to semiskilled. Moving to a craft dominated workforce would have meant reduction in voting power and income of the unskilled and semi skilled unions such as TGWU and increase in power of such unions as EETPU and AEU which would have been resisted by the former. A significant number of industrial disputes were of the demarcation type and contests between the unions as to which one could obtain the highest wages. When introducing more advanced technology a significant cost is the the actual training . When computer controlled printing was developed the need was for electricians and instrument technicians which meant power moved from the print unions to the EETPU. I think the EETPU was one of the few unions which had it’s only training centre as it realised the ability of it’s members to continue earning high wages meant they had to keep up to date with the new technology. If we wish to reduce relative poverty then we need to educate and train the unskilled and semi-skilled so they can become skilled.

Someone earning £10K takes home approximately £8k. If by becoming skilled and earning £30k , they takes home £22.2k. If we only tax above £10k, the person on £10k increase their take home pay by 25% . If that same person becomes skilled and the state does not tax the first £10K , then the person earning £30K takes home £24K . Therefore by educating and training the unskilled so they become skilled and not taxing the first £10k , the actual take home pay triples . Whether a banker earns £1m or £2m has minimal impact on the take home pay of the unskilled worker but increasing it from £8k to £24k has a massive improvement.

German car workers can earn £40k because they have the education and skills to produce high value products.

When assessing wage costs, the individual salary is not of prime importance, it is the total wage cost relative to the value of the product. We have grown wheat for 10K years, we no longer use sickles but large combine harvestors which work 24hrs a day. The combine harvesters of today are far more advanced than those of 10, 20, 30 , 50 or 50 yrs ago. Even 30 yrs ago a farmer would often have owned their own combine harvester , now it is done by contractors using far larger machines. The technology needed to maintain a modern combine harvester is in far in excess of that of farmer or the local mechanic. Farmers who understood the way technology was going set them selves up as contractors . The more educated and skilled farmers have had a better chance of survival.

JCB has survived because it has remained in the fore front of technological development. The first JCB was created by a farmer and was entirely mechanical apart from the ignition and lights; now look at the electronics. This means the market demand has moved from being almost completely mechanical to needing electronic control technicians. The problem is that , as you have pointed out ,the UK is not producing enough schol leavers with Maths and Physics GSCEs which become far important as manufacturing becomes electronic rather than mechanically dominated.

@ Nick

Is that really a comprehensive refutation? I’ve read Jimmy Hill’s links as well, and they all seem to be related mostly to life expectancy and nothing else. The scope of the book is much wider than that, so at best it’s pointed out a flaw in one spoke of the argument.

“There is much more robust correlations that lack of economic freedom harms people more than mere inequality ever could.”

Ignoring the fact that Jimmy Hill’s other links criticise The Spirit Level for assuming causation and correlation are the same (I’m not able to critique the blog posts, but they do discuss causation/correlation problems in the book), I’d be interested to know what these are and where you have found them.

I’m also a bit confused why this guy seems to think life expectancy is the gold standard of measuring health.