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Inequalities of the 10 percenters

Written By: - Date published: 9:29 am, April 12th, 2014 - 28 comments
Categories: assets, bill english, class war, cost of living, david cunliffe, david parker, election 2014, john key, labour, national, poverty, spin - Tags:

All inequality measures are not equal.  The GINI Coefficient is widely used to measure inequality, enabling the production of some clear graphs and comparisons between countries, as well as comparisons over time within countries.  However, it has its limitations, and doesn’t necessarily show the impact of vast increases in inequality between the most and least well off sections of the population.  Focusing solely on one way of measuring income inequality, can divert from the fact that too many Kiwis are experiencing hardship: and focusing solely on income inequality can mask the vast inequalities in wealth and asset ownership.

These are some of the things I learned this yesterday following Pete George’s comment on open mike yesterday.  Pete’s post was about the latest article on the new Politicheck website looking at differences between the way Labour and National MPs talk about inequality, especially as represented in a recent exchange in the House. As political fact checking goes, this is a pretty mediocre effort, looking at limited and selective evidence and providing some shallow analysis.   Furthermore, the Politicheck article focuses too much on David Parker’s reference to a NZ Herald Digipoll in which the majority of those polled stated they thought that income inequality in NZ is rising.  Clearly, when looking at statements by the Davids Cunliffe and Parker over the last year, they are using other statistics as evidence for their conclusions.

Some of the most recent press releases from David Parker refer to a significant mix of income inequality and asset inequality.  On 30 January 2014, in the House David Parker asked Bill English points to the way income inequality (even if not rising in itself, can result in rising asset inequalities.

This NZ Herald article of 28 January 2014, the author Adam Bennett concludes that both Cunliffe and Key’s claims on inequality in their state of the Nation speeches, are not supported by the evidence.  Then there is this statement about the kinds of evidence Cunliffe and Parker draw on:

With no clear trend, the ministry analysis doesn’t support Labour’s view that inequality is increasing but Labour argues that work doesn’t tell the full story. It argues the data it is based on doesn’t include much of the income more well-off New Zealanders get from realising assets.

There have been other previous analysis and reports of NZ’s income inequalities: ones that used statistics such as those provided by the GINI and that provided a more in depth and more reliable an analysis than that on the Politicheck site.  For instance, there was this post and discussion on the NZ StatsChat website, last December.  And the CTU did a fairly in depth analysis in August 2012, drawing on a range of statistical measures, including the NZ Household Economic Survey and the GINI index.  Among other things, it showed greater inequalities in market income, before redistrubitive measures are accounted for; such measures as occurring via taxation and Working For Families which go a long way to reduce inequalities.

One of the main conclusions of the CTU report includes consideration of changing levels of hardship experienced. Hardship covers things like access to essentials like having enough food to eat. The report also makes comparisons between those on the top and bottom levels of income.

The changes in income were not evenly spread: the top third of households by income saw increasing incomes. The bottom two-thirds had falling incomes –some falling steeply.

The most significant, and clearest indication from NZ’s results on the GINI, is that income inequality rose markedly in the late 1980s and the 1900s, and that it has remained high ever since.  This strongly indicates that the “neoliberal” consensus in play since the late 1980s, has been a significant driver in the heightened level of inequality.  Labour and National can debate whether it was more or less high under each of their watches.  But the clear indication is a need to move away from the neoliberal consensus.  Measures are needed to counter the high levels of hardship and inequalities in income, wealth and asset distribution amongst the most and least well off.

Too much reliance on the GINI measure of income inequality can mask increases in the severity of hardship people experience and/or the numbers of people experiencing such hardship.  This is included in the Wikipedia outline of the limitations of the GINI.  It’s also included in the World Bank overview of different ways of measuring inequality and poverty.

Share of income/consumption of the poorest x%: A disadvantage of both the Gini coefficients and the Theil indices is that they vary when the distribution varies, no matter if the change occurs at the top or at the bottom or in the middle (any transfer of income between two individuals has an impact on the indices, irrespective of whether it takes place among the rich, among the poor or between the rich and the poor).

They state that measuring the top and bottom 10% or 20% would be more reliable. Today’s NZ Herald provides further evidence of the increase in inequalities between the top and bottom 10 % in NZ.

The pay gap between the highest and lowest earners is getting wider. It’s a trend that, says one researcher, can be traced back to the 1980s.

The OECD report, Society at a Glance 2014, says the highest-paid 10 per cent of workers in New Zealand earn 32 times more than the poorest 10 per cent – a 32-to-one pay ratio.

There’s figures point to real impacts on real people’s lives – where too many people in NZ are experiencing hardship. This is an extremely important election issue.

28 comments on “Inequalities of the 10 percenters”

  1. Colonial Viper 1

    Good points karol.

    As for the concrete, raise all main line benefits by $30 p.w., widen eligibility to them, slash benefit abatement rates, (or perhaps dump all that complexity and just go to a UBI), increase the minimum working wage to $16/hr, and have a full employment scheme for 25s and under. Get state housing and utility pricing sorted.

    NZ poverty = virtually gone in 18 months.

    I notice no NZ political party has anything remotely similar proposed, preferring instead to dance around the issue of poverty like its some intractable monstrosity.

    • greywarbler 1.1

      Yeah pollies like a core of welfare problems festering away in a pile throwing out heat that they can warm their hands on and then to keep it going, actively create more welfare problems to toss on the fire.
      Its sustainable, renewal energy to feed their political rhetoric and get the voters ablaze with horror and disgust.

      Makes sense, from their point of view. And they can paint themselves as poor blighted blighters who have such a hard job ahead of them coping with all these intractable layabouts, miscreants, fecund fools, fertile flirts, uneducated morons, testorone-driven dickheads, violent vexatious vermin – what can we do, they say quizzically?

      But leave it to us we have broad shoulders and can act on your behalf, doing the hard yards to get things better and stop them spreading the plague and their head lice, and hepatitis and mad dogs that bite children.

      Set out like this and seeing how the scenario fits with the political rhetoric and activity with living and working conditions, lack of jobs, and lack of respect and fair resources for those outside ‘the system’, it is obvious that poor quality welfare delivery is a rich vein that pollies can inject into for good personal highs.

    • Draco T Bastard 1.2

      I notice no NZ political party has anything remotely similar proposed, preferring instead to dance around the issue of poverty like its some intractable monstrosity.

      They don’t want to address the fact that the reason why we have poverty is because we have rich people.

  2. Bill 2

    How can the gap between the wealthiest and the poorest not increase when a whole heap of people spend all of their money getting from one week through to the next while others are able to invest surplus money in assets? Seems logical that the gap can only increase at an accelerating rate under those circumstances.

    Even if a much higher tax rate on higher earnings was put in place, the gap would continue to increase at an accelerating rate, simply because there would still be people in a position to use their money to make money while others used all of their money to buy necessities.

    Or am I missing something?

    • geoff 2.1

      nailed it, bill.

    • Colonial Viper 2.2

      Ahhh, the wonders of unbridled capitalism and unfettered free markets – where every man, woman and child is a tradeable commodity to be monetized for the benefit of large shareholders.

    • Draco T Bastard 2.3

      Nope, that’s it. As I’ve said time and time again – the problem is the rich.

  3. greywarbler 3

    A discussion with Kim this morning and a USA wise-doctor and experienced medical observer and executive resulted at one stage in a comment about how the USA has very little rheumatic fever, and they have closed down much of the resource involved in dealing with it.

    Unlike here.

    http://www.radionz.co.nz/national/programmes/saturday
    10:05 Catherine DeAngelis
    Dr. Catherine DeAngelis is University Distinguished Service Professor, Emerita, and Professor of Pediatrics, Emerita, at Johns Hopkins University School of Medicine, and was the first woman editor-in-chief of the Journal of the American Medical Association, from 2000 to 2011. Dr DeAngelis is visiting Seelye Fellow at the University of Auckland, and delivered the public lecture, Patient Care and Professionalism, and university talk, So You Want to be an Author?

    This is audio note: Catherine DeAngelis ( 50′ 2″ )
    10:07 Catherine DeAngelis: policing pharma Emeritus professor at Johns Hopkins University School of Medicine, the first woman editor-in-chief of the Journal of the American Medical Association, and visiting Seelye Fellow at the University of Auckland.

    • Colonial Viper 3.1

      a USA wise-doctor and experienced medical observer and executive resulted at one stage in a comment about how the USA has very little rheumatic fever, and they have closed down much of the resource involved in dealing with it.

      Now, I didn’t hear this piece, but the comment strikes me as a load of fetid dingo’s kidneys.

      With 48M Americans surviving on food stamps, 2M-3M people experiencing homelessness at some time during a year, and over 50,000 homes foreclosed on per month, I’d simply say that they aren’t looking in the right places.

      Of course, if the doctor was talking about nice places like Fairfax, Arlington or Nassau counties (all with median household incomes of over US$90K), then yeah, not much acute rheumatic fever there.

      If you are talking about places like the Ohio Valley – well there, even adults come down with acute rheumatic fever and it is frequently left untreated. But in the “richest country” in the world, who wants to talk about detail like that.

      • greywarbler 3.1.1

        CV
        Your surprise at the ‘data’ I put up sounds justified when you consider the amount of poverty in the USA. I thought I heard this comment about the drop in Rh fever. Perhaps she was talking about just one state. That could be it. Anyway the link is there to get you near to the audio.

      • BEATINGTHEBOKS 3.1.2

        Rheumatic fever is an immune mediated disease that would be more common in Europeans if they were as genetically susceptible to it as Polynesians. Basically it is a result of Polynesians genetic susceptibility to it, not the proportion of individuals colonized with the bug which is found in about 20% of most adults. These scientific facts make comparisons between the rates of RF in various ethnic groups like comparing apples and oranges. Although housing overcrowding and fewer Dr visits increase the risks of the disease in Polynesians, once seen Drs are well aware of these increased risks , and the disease and will be treated according to this increased risk which is documented and reflected in current ministry of health guidelines, ( go to MOH sore throat guide lines). That’s in NZ though, each state in the US probably has their own guidelines. Rheumatic fever in Europeans is rare and this is in fact due to their immunological susceptibility to it and is a confounding variable when comparing rates between ethnic groups.

  4. JanM 4

    I got sent this link today from the Guardian which speaks grimly of the situation in Britain: http://www.theguardian.com/society/patrick-butler-cuts-blog/2014/apr/10/wonga-or-worse-debt-millions-close-to-the-edge
    It’s not just us

    • greywarbler 4.1

      I wonder if Britons would like to introduce MMP if they knew about it. It doesn’t save you from having avoidable economic pressures or avaricious and inept politicians, but does give another view of what politicos should be thinking about.

      Over in Brit they would probably have a hard right anti immigration group, and an environment party, and a People’s Future party as well as the alternative centre one is it Liberal, who would be able to present some alternatives to the present smug TINA s.its who are so downy they don’t need cushions.

      • karol 4.1.1

        My Brit friends are against alliances between parties – they have been put off MMP type approaches by Nick Clegg’s sell out of the Liberal Party.

        They have little understanding of how proportional representation works.

        • greywarbler 4.1.1.1

          Some proportional representation seems to have more possibility of moral hazard., ie prioritising through all the parties. It is hard for those used to FPP to get their heads around and then fans of one or the other type cause extra confusion. Also some people think it will solve everything and hearing that it won’t, vote for apathetic clinging to the present failed system.

      • Bill 4.1.2

        There are already various proportional voting scenarios used in the UK. (eg, Welsh Assembly, Scottish Parliament and the Northern Ireland Assembly) FPP seems to only be used for the UK general election.

  5. Tracey 5

    country to country comparrisons are not helpful amongst those nations deemed least poor because politicians and shallow thinkers like slylans say

    nz is number one in oecd so no poverty here…

    which is not what being number one means

    • greywarbler 5.1

      Not as stinky as number twos. Which is more useful for growing useful things than getting accolades for having the best non-violent revolution in the world.

      Our revolution was virtually bloodless. We stood with our mouths open and let the little red white and blue men land and squeak ‘One small step for man but one giant step for global capitalism’. Now there is a whole large building in the land of our master race, devoted to space for trainee economists working out charts, questionnaires, and measuring tools also computer games that show our progress in heroic, exciting ways with upbeat voiceover to go with positive press releases.

  6. Raa 6

    Why Labour is the underdog in this election.

    National has selected a field of young candidates for the 2014 election, allowing them to paint Labour as being wedded to outdated concepts such as social justice, common good, and environmentalism in contrast to pursuit of self-interest.

    De-funding the Problem Gambling Foundation might have been influenced by the organised gambling industry. Independent Commissions of Inquiry into Election Funding and the Gambling Industry are long overdue.

    Low turnout, due to lack of compulsory voting as in other jurisdictions favours incumbent governments. National won’t rock this boat.

    Failure of NZ Labour to connect with grassroot voters. When did you last see Cunliffe, Richardson, or Jones with their sleeves rolled up at the local market, pub, installfest, garden show, or street fair .. ?

    Failure to capitalise on National weaknesses, inability to provide a viable constructive alternative, inability to counter Keysian pandering to the lowest common denominator.

    • karol 6.1

      Labour MPs are out there connecting with people on the ground.

      Scroll down through Cunliffe’s twitter feed to see who and where he’s been visiting.

      Of course most others don’t know this unless it gets widespread media attention.

      • Populuxe1 6.1.1

        “Of course most others don’t know this unless it gets widespread media attention.”

        Actually I expect more people follow Cunliffe and other politicians on twitter and facebook than get their political news from newspapers, television or radio.

    • Tracey 6.2

      can you list the names and ages of the national mps

  7. papa tuanuku 7

    This article is too long. It needs to be longer than a teeet, but personally I found it difficult to see what point it’s trying to make

  8. My podcasts #11 and #12 at http://www.stevehart.co may be of interest re pay disparity in NZ and the UK.

  9. tricledrown 9

    Thomas Picketty economist
    Has looked at economic data going back 200 years.
    He has arrived at the conclusions that free market capitalism is failing most of us exvept the 0.1% who are gutting the worlds economies for their greedy selfindugent power.
    The rise of communism caused western capitalism to be more compationate but now since communism decline neoliberal capitalism has gone back to the days of the robber barrons beggers and debtors jaols.

  10. tricledrown 10

    NZ’s worst bene bludgers
    John Key bailed out by US taxpayer by millions$
    SCF investors all National voters Bill English widened the Labour govts bank guarantee scheme to cover dodgy finance companies total cost $2 billion plus.So National could keep its majority in cantabury electorates.
    Rio Tinto $500 million of taxpayers money foregone so national can keep its majorities in clutha southland electorates.

    • Melb 10.1

      And if the Govt left SCF and Tiwai point to their own devices then your comment instead would be ranting about National not caring about families with savings in SCF, not caring about hardworking Kiwis in Southland, leaving the provinces to wither away etc etc.

  11. Fip 11

    The Gini co-effiecient typically used only measures income differences based on data collected about individual incomes because that is all that is available. You could improve it by collecting better data.

    Benefits are largely distributed based on families. Note a discrepancy. One among many in the system. You are taxed on individual incomes, but paid (benefits) on collective responsibilities (working for families). A bit of consistency would be good start. Either grant benefits on individual income levels (like a UBI) or tax on family commitments/dependencies.(like income splitting).

    Just like improving the Gini coefficient would be a start. It’s a step in the right direction not the whole answer. An asset tax to help fund a UBI is another step in that direction. Assets make a huge difference to a person’s disposable income by either increasing their income (income earning assets) or saving expenses (owning a home means you do not have to pay rent and end up with a valuable asset when the mortgage is paid).

    There is no perfect solution. Only steps towards better. We are able to measure and use inflation and interest rates, GDP, unemployment rates and any other of numerous flawed measures for economic management. Well a Gini coefficient is another flawed measure that can be used which would change direction of economic management if it was to be reduced. In doing so it would indicate a greater equality of income distribution which is better for all.

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