Smellie on income inequality

January 30th, 2014 at 11:00 am by David Farrar

writes at Stuff:

It is true New Zealand has become more unequal over the past 30 years but not so true in the past 15 years. The gap between rich and poor widened radically between the early 1980s and the late 1990s, taking New Zealand from around 20th most unequal in the Organisation for Economic Co-operation and Development – the club of 34 rich countries – to about ninth today.

But recently, those differences have barely changed, although it does seem there is something cultural about the phenomenon. English-speaking countries generally rank higher than other OECD nations for inequality.

Australia is less equal than New Zealand. Don’t take my word for it, or the word of Brian Perry, the researcher at the Ministry of Social Development who has crunched the relevant data and produced the most definitive account of in a publication called Household Incomes in New Zealand.

Don’t even take the word of the team of researchers put together by journalist Max Rashbrooke for his book Inequality: A New Zealand Crisis, which has been extensively toured since publication last year to raise awareness of the issue.

Instead, take the word of , one of neo-liberal economics’ most long-standing critics, who has penned a handy compendium of the available data, titled: Inequality in New Zealand – A User’s Guide.

Easton’s publication is here.

In short, Easton’s summary shows that total personal income was relatively stable between 1926 and the 1950s, after which equality improved through to the mid-1980s.

That period covers both the golden age of prosperity in New Zealand and the onset of economic decline in the 1970s, to which first protectionism and then Rogernomics were the broad policy responses.

Between the mid-1980s and mid-1990s, Rogernomics cut a swath through traditional, subsidised industries; income tax cuts and GST were instituted, which hit the poor rather than the rich; and then the Ruth Richardson welfare cuts of the early 1990s completed a sharp decline in equality.

“The trend after the mid-1990s is more ambiguous,” Easton said.

“The best interpretation is that the income distribution has remained at roughly the same level of inequality over the last two decades.”

During that time, however, the share of income earned by the top 1 per cent of adults rose from six to 10 times the adult average, with most of that shift happening in the early years of the Clark Labour Government, between 1998 and 2003.

How unfortunate for Labour.

Clearly, New Zealand has income inequality that has got worse and then stabilised. Political parties of all stripes know that and are responding in various ways, to varying extents.

National’s social housing foray and its retention of benefits and family assistance through the post-GFC recession are proof that Tories worry about inequality, albeit with less hand-wringing than the Left and with greater willingness to reward wealth creators disproportionately. How we respond as a nation is one of the most important things our politics can do.

But let’s start with the facts about inequality, which are not as clear-cut as many have thought. 

One pet peeve I have is that so many measures focus on before tax income, rather than after tax income. It is what families actually get in the hand which matters.

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20 Responses to “Smellie on income inequality”

  1. Fletch (6,490 comments) says:

    All this talk of income inequality is socialist b/s.
    There will always be people who earn more than others. There will be those starting off in the lower rungs of the pay scale when they first start work, but that doesn’t mean they stay there. Margaret Thatcher addressed this in the video I posted yesterday, when she said that income equality “makes the poor, poorer, and the rich less wealthy”.

    Yes, it is possible to decrease the gap between rich and poor, but if that means the whole country is less wealthy as a whole then it is a false indicator of wealth.

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  2. BeaB (2,145 comments) says:

    It is interesting that the shops are busy, the carparks are full, the supermarket trolleys are loaded to the top, the housing market is booming, car sales are up, you could barely move in Smiggles over the last week or so (the most expensive school supplies shop), the food courts are doing a roaring trade, the beaches have been crowded.
    One in four of us may be poor as Cunliffe would have us believe and our kids may only have one pair of shoes (as I always did throughout my childhood) but the tills still seem to be ringing.
    I think Kiwis will soon tire of this ridiculously-hyped poverty talk especially when combined with the Greens banging on about our terrible human rights record. It’s hard to take seriously a Harvard-educated bloke from Herne Bay and a fattie in $4000 designer jackets.

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  3. labrator (1,850 comments) says:

    …are proof that Tories worry about inequality…

    When did Tory become an acceptable term for the right of centre in NZ?

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  4. BeaB (2,145 comments) says:

    I love that Lorde wore her school shoes to the Grammys.
    Just like most of us who wore our school shoes for best.

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  5. EAD (1,305 comments) says:

    Well no sh*t sherlock.

    When you’ve got a Government that operates a paper fiat money system such as the one that we’ve been on since August 15th 1971 which started the “onnset of economic decline in the 1970s” of course the connected will get richer and the poor will get poorer (but will think they’re getting a good deal from welfare)

    Ayn Rand summed it up well what happens when you have big government at the centre of economic life:

    “When you see that trading is done, not by consent, but by compulsion – when you see that in order to produce, you need to obtain permission from men who produce nothing – when you see that money is flowing to those who deal, not in goods, but in favors – when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you – when you see corruption being rewarded and honesty becoming a self-sacrifice – you may know that your society is doomed.”

    http://mises.org/daily/6604/The-State-Causes-the-Poverty-It-Later-Claims-to-Solve

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  6. backster (2,184 comments) says:

    Bea………………….Like Cunliffe says, maybe Lorde only has one pair of shoes.

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  7. OneTrack (3,223 comments) says:

    “All this talk of income inequality is socialist b/s.”

    All this talk of income inequality, the way the left in NZ are currently doing it (median income), is communist b/s. The way they are calculating it, the only resolution is for everybody to be on the same income.

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  8. dime (10,102 comments) says:

    “It is what families actually get in the hand which matters.”

    what about single people? do we ever factor into anything?

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  9. Kea (13,359 comments) says:

    what about single people? do we ever factor into anything?

    dime, no !

    If you are a single white middle aged male, with no kids, society will not piss on you if you are on fire. You do not tick any “victim” boxes regardless of your circumstances.

    You are bottom of the barrel brother. Join the club ;)

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  10. Nigel Kearney (1,048 comments) says:

    We have to strongly resist the suggestion that inequality is a problem at all.

    There is simply no cause and effect relationship between reducing inequality and lifting the standard of living of the poorest people in society. Wealth is not a fixed quantity of stuff that has to be taken from some in order for others to have extra.

    People have very different levels of ability to create value. If everyone is achieving their potential and being rewarded accordingly, there ought to be significant inequality. If the highest achievers are not being rewarded for their work, they will stop doing it or go elsewhere. As soon as you accept that inequality is a problem, you are committed to a socialist system because that is the only way incomes can be equal. Patrick Smellie and Brian Easton might welcome that, but most New Zealanders would not.

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  11. radvad (772 comments) says:

    Just imagine we could make everybody equal financially by 8.00 am tomorrow morning. By 8.05 am there will be gross disparity as individuals use their resources differently. Some will invest in business or education, others will save and some will blow it all. Equality of circumstance is a pipe dream.
    This is just a rehash of “closing the gaps”. Remember that? It was canned after the public got totally sick of hearing about it and it became obvious it was just a euphemism for granting privilege based on race. I suspect that “inequality” will go the same way before the end of the year.

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  12. KiwiGreg (3,259 comments) says:

    if Brian Easton is the answer it must have been a pretty fucking stupid question.

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  13. lolitasbrother (749 comments) says:

    Yes thats right.
    My own dear wife earns $12 an hour here,
    in Thailand she can earn the same amount per day

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  14. Tom Jackson (2,553 comments) says:

    People have very different levels of ability to create value. If everyone is achieving their potential and being rewarded accordingly, there ought to be significant inequality.

    You’re assuming that people are to be rewarded in proportion to the value they personally create.

    I’ve news for you: that is not capitalism. Under capitalism your labour, although it is a commodity you always possess for rent or trade, is not the only kind of commodity you may rent or trade. A person who inherits vast tracts of arable land and has managers run it has personally created zero value, yet has violated no principle of capitalism.

    If you want a system where labour is rewarded in proportion to its value, it’s called Marxism.

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  15. Tom Jackson (2,553 comments) says:

    All this talk of income inequality, the way the left in NZ are currently doing it (median income), is communist b/s. The way they are calculating it, the only resolution is for everybody to be on the same income.

    No.

    The choice does not have to be between equality or inequality. The most prominent political philosopher of the 20th Century, John Rawls, famously argued that a just distribution may have any amount of inequality, just as long as the worst off in society would not be better off under any other distribution that was more equal (people disagree about how that might be achieved, see the “Rawlsekians”).

    It’s perfectly reasonable to argue that our society does not satisfy Rawls’ principle.

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  16. dime (10,102 comments) says:

    Tom – heres a quote from another great philosopher

    “piss off commie”

    and heres another

    “earn your own cash commie”

    and just for good measure

    “unless your starving and in the rain i dont care”

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  17. Tom Jackson (2,553 comments) says:

    Go back to daycare, dime. This one’s for the grown ups.

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  18. Kea (13,359 comments) says:

    If you want a system where labour is rewarded in proportion to its value, it’s called Marxism.

    Jesus -bloody- wept ! LOL :)

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  19. dime (10,102 comments) says:

    “Go back to daycare, dime. This one’s for the grown ups.”

    the grown ups who dont really want to work that hard, they just want to theorise how the state should take other peoples money and give it to them.

    Heres the cool thing tommy, if we were all born under the same financial circumstances, you still wouldnt have ended up rich. Just a dude who thinks the world isnt fair.

    so yeah, piss off commie.

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  20. Hawkinarium (1 comment) says:

    But David, you forgot this important nugget of information, just after you cut out the quote:
    In 2004, Labour introduced the Working for Families income support package, and from then on, income inequality has stabilised at a so-called Gini co-efficient of about 2.8, compared with about 2.4 before Rogernomics kicked in. That is consistent with National preserving Working for Families once elected, despite initially describing it as “communism by stealth”.

    Important isn’t it? Funny how people on both sides of the political isles (though I do see a lot more from right leaning voters) twist facts even though they are not politicians and apparently want nothing but the truth?

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