Tim Worstall

Seumas Milne: Logical Fallacy

Sorry, but this isn’t (necessarily) logically true:

Last year, the share of the poorest fifth fell as that of the richest
fifth grew larger. The highest 1% of earners’ share of national income
is up 3% over the decade; and the top 0.1% are now grabbing the same
slice as in 1937. While the government has used tax and benefits to
pull more than half a million children above the poverty line and
redistribute modestly between the better and worse off, resources are
being systematically transferred to the wealthiest in the land.

There’s a difference between new wealth creation going to those already wealthy, increasing the size of the gap, and what wealth there already is flowing from the poor to the rich. I’m perfectly willing to admit that the former is happening but would need to be convinced that the second is.

I can even give you a good guess as to what the reason for that top 0.1% getting the gains is: globalization. No, not imports, rather, that that small percentage of the population that can compete on a continental, or global scale, is doing so. Instead of their getting 5 pence each off 60 million people, as they would be if restricted to selling their skills in the national economy, they’re getting 5 pence each off 6 billion people (numbers purely for example’s sake, of course) by exporting their skills.

Peter Mandelson famously declared himself "intensely relaxed about
people getting filthy rich" and Tony Blair was adamant he didn’t care
that there were people who earned a lot of money. His only concern was
to reduce poverty, rather than attempt to narrow the gap.

Well, quite. As long as the material conditions of the poor are improving, why should anyone care that the material conditions of others are improving faster?

Only when the government begins to shift away from free market
orthodoxy can the underlying trend to greater inequality be reversed.

Hmm. Full blooded state socialism did so much to both improve the living standards of the poor and reduce inequality, didn’t it? All those special shops and apartments for the Party insiders while the population rotted in the communal apartments.

Pining for the old days, eh Seumas?

In

16 responses

  1. Mark Wadsworth Avatar
    Mark Wadsworth

    Agreed.

    Reply
  2. paul ilc Avatar
    paul ilc

    The relative poor will always be with us, no matter how rich we become. What the poverty lobby wants is not less poverty but more equality. They’d be very happy for us all to be poorer if we were all more equal as well.

    Reply
  3. JH Avatar
    JH

    You dismiss concerns about inequality, “as long as the material conditions of the poor are improving”, but – from an economic perspective – what is important is not simply material wellbeing but utility (which is of course influenced significantly by material wellbeing).
    There is a wealth of literature which suggests that relative income (and not just absolute income) has a direct bearing on individuals’ utility, which would in turn suggest that perhaps some of us should indeed care about (possibly) rising inequality.

    Reply
  4. Mark Wadsworth Avatar
    Mark Wadsworth

    “some of us should indeed care about (possibly) rising inequality”
    Sure, but I guess it’s the people at the bottom who should care most.
    This is easily fixed – they can just work a bit harder, not have so many kids and spend more attention on a smaller number of kids etc etc.
    PS The fact that footballers and merchant bankers earn hundreds or thousands times as much as I earn is irksome, but not a major disaster. So why should somebody who earns a tenth of what I earn begrudge me it?

    Reply
  5. Matt Munro Avatar
    Matt Munro

    This “relative poverty” concepts always gets on my nerves, as do argument to the effect that we can somehow “lift” people out of poverty. By definition if you measure poverty relatively, there will always be a bottom 10%, even if we were all millionaires. As a middle income working parent it annoys me intensley that I and my partner have a disposable income lower than that of single parents on benefits. No one wants to see people, and especially children living in poverty, but I do not consider access to free healthcare, education, housing, transport and the rest to constitute living in poverty. Genuine poverty has not existed in this country since the 1950s.

    Reply
  6. Matthew Avatar
    Matthew

    “As a middle income working parent it annoys me intensley that I and my partner have a disposable income lower than that of single parents on benefits”
    Are you sure of this?

    Reply
  7. Mark Wadsworth Avatar
    Mark Wadsworth

    Matthew, before we even start on this, you have to familiarise yourself with the official Tax Benefit Model Tables(/a>. They seem confusing, but if you compare the right tables, they sort of back up Matt’s assertion.

    Reply
  8. David Gillies Avatar
    David Gillies

    Milne is nearly as repellent a creature as his fellow Grauniad hack, Neil Clark.

    Reply
  9. Serf Avatar
    Serf

    There is a wealth of literature which suggests that relative income (and not just absolute income) has a direct bearing on individuals’ utility, which would in turn suggest that perhaps some of us should indeed care about (possibly) rising inequality.
    That may be the case, but it is still dishonest to label inequality as poverty.

    Reply
  10. Matthew Avatar
    Matthew

    Mark, I’m quite familiar with those tables having had a long discussion with someone (possibly you, actually!) about them on this site, but all I see is that a single parent with a child gets a disposable income of about 10,000 a year, which I find hard to believe is more than a middle-income couple.

    Reply
  11. Mark Wadsworth Avatar
    Mark Wadsworth

    Middle income = average income = £25,000.
    Dad working, gets £18,700 net, plus a couple of grand in child benefit. Pays repayment mortgage, average a quarter of net salary, gets household income down to £16,000 after housing costs (to compare like-with-like).
    On basis of equivalised incomes, a two adults plus child need 40% more income than one adult plus child, so to keep up with single Mum they need £14,000.
    So average earner family is £2,000 ahead of the game for doing a full time job.
    Sounds like shit to me.

    Reply
  12. Mark Wadsworth Avatar
    Mark Wadsworth

    Well Matthew, once you factor in housing costs, a single earner couple on average wage £25,000 with children has much the same “equivalised” income as a lone parent on benefits.

    Reply
  13. Matthew Avatar
    Matthew

    I partly assumed he meant ‘middle income’ as in ‘middle class’, which is surely more like £40,000.
    But even on £25,000, it’s not more, which he claimed, and also I think you shouldn’t count the repayment part of a mortgage, as that’s saving which isn’t being made by the single-parent.

    Reply
  14. Mark Wadsworth Avatar
    Mark Wadsworth

    OK, call it 19% for just the interest element (something I read somewhere recently) and we end up with working family £17,000, single Mum £10,000.
    To equivalise, divide single mum’s income by 0.8 (0.6 for first adult, 0.2 for each child) and you get £12,500. Divide working family income by 1.2 (0.6 plus 0.2 plus 0.4 for second adult) and you get £14,166.
    You must admit that the equivalised income of single earner couple is not significantly higher than for lone parent, and they are bearing the risk that the working partner loses job and they lose everything. And one of them is going to work and paying taxes.

    Reply
  15. Matt Munro Avatar
    Matt Munro

    To clarify – my income is around £25k, my partners around £20k, so assuming that an average family = 2 average earners we are slightly below average.
    Aren’t both of you missing the fact that single parents get free housing ? And there are lots of little things (like being able to take holidays in term time and getting priority entrance to the school of your choice) that have a social cost and basically just take the piss.

    Reply
  16. Mark Wadsworth Avatar
    Mark Wadsworth

    Matt M, I was doing this post-housing costs for consistency. If you look up the DWP’s Tax Benefit Model Tables you will see that in your original post you were pretty much correct.
    I was agreeing with you, BTW.

    Reply

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