Tim Harford has an interesting article on inequality in the FT today. As he notes, the trend towards greater inequality is indisputable. Using data from here he notes that the income share of the top 1 per cent has roughly doubled in the US since the early 1970s, and is now about 20 per cent. The same trend is seen in the UK but the income share of the top 1% is 14%.
As he also notes the trend is worrying, noting that:
Between 1993 and 2011, in the US, average incomes grew a modest 13.1 per cent in total. But the average income of the poorest 99 per cent — that is everyone up to families making about $370,000 a year — grew just 5.8 per cent. That gap is a measure of just how much the top 1 per cent are making. The stakes are high.
I must be fair: Harford notes that this trend has social consequences, but he does not address them. What he instead asks is why this is happening and says:
The uncomfortable truth is that market forces — that is, the result of freely agreed contracts — are probably behind much of the rise in inequality. Globalisation and technological change favour the highly skilled. In the middle of the income distribution, a strong pair of arms, a willingness to work hard and a bit of common sense used to provide a comfortable income. No longer. Meanwhile at the very top, winner-take-all markets are emerging, where the best or luckiest entrepreneurs, fund managers, authors or athletes hoover up most of the gains. The idea that the fat cats simply stole everyone else's cream is emotionally powerful; it is not entirely convincing.
And that's where the nonsense begins, with discussion of well functioning markets following this comment, the suggestion being that these are what we have.
But we don't. We have markets were access is denied: as Harford notes in the UK you have best chance of a high income if your parents also had high income. And we have a system that ensures that the mechanisms that ensure access to privilege are maintained. So children attending private schools have much higher access rates to Oxford than those from state schools with identical grades, for example.
And, of course, top pay is not market determined: pay committees are an oligopoly of the elite for the benefit of the elite. There is no evidence of a market, at all.
What is more, markets only work when no one participant can influence pricing but when some have 14 times more than the share of resources that would be allocated to them in an equal society - which by implication market theory assumes to exist - then the conditions for efficient markets don't exist: the votes are unevenly distributed.
There is, of course, an answer to this: it is more progressive taxation and it is wealth taxation. I made the case in a paper for the Class think tank. Observing inequality is not enough. Action to reduce it is required.
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Tim Harford’s definition of “freely agreed contracts” is a bit strange. For most of the population work is a necessity not a choice – unless you have inherited a lot of money or won the lottery, you have to work to survive (especially nowadays when the unemployed and disabled are labelled “scroungers” and thrown off benefits. This means that the employment relationship is largely a product of coercion, not choice. Karl Marx understood this very well: Tim (despite being an extremely bright guy) appears not to.
Agreed
Tim is bright
But the obvious sometimes eludes those who have options not available to others
We all know the ‘free’ market is a myth. Max keiser frequently refers to our present set up as ‘reverse socialism’, that is, socialism for the very rich. When the hedge-funds (banks) get into trouble there is a bail out and for the poor there is a bail in ( you pay for the mistakes of the super rich). A Canadian analyst called Rob Kirby, interviewed by Kaiser, refers to a pattern of rigged markets followed by interventions to sort out the mess.
http://rt.com/shows/keiser-report/episode-483-max-keiser-386/
Maybe we should bring back grammar schools. That way you would know that “were access is denied” should be “where access is denied”. It would also help smart but poor kids to get to Oxbridge.
I went to a grammar school
And despite their best efforts that differentiation – which I was not always able to make throughout my schooling – remains a blindspot today
Would I wish for grammar schools again? No way! I witnessed their massively harmful social impact
Richard,
here I do, violently, disagree with you.
It certainly isn’t ideal for schools to select children on nothing more than their intelligence score at 11.
It is, however, a lot better than selecting them on the area their parents live.
What decides the area you live in ? Your class, ethnicity & wealth.
So, choosing for the best schools by intelligence score at 11 or choosing for the best schools by class, ethnicity & wealth?
Not a hard one is it IMO ?
Look at the 1950s & 60s. There genuinely was far more social mobility than there is now.
Another great advantage is that it mixes the children up. My lads both go to a grammar school in Birmingham. There are children of all ethnicities & all religions there. The local comprehensive schools tend to be predominantly white or black or south-asian muslim with not much mixing.
So do the Brighton lottery system
It’s a trait often linked with creative thinking! On the other hand some people do not like to think differently than others. Not much to do with intelligence; more an attitude to life. We see examples of both on this blog today.
When I was at Oxford an overall majority came from UK grammar schools (and many, probably most, public schoolboys had got to their school on scholarships – in my year, from my school, no-one who went to Oxford had paid full fees – now, thanks to Tony Crosland, an overall majority come from UK private schools. That ignores Rhodes scholars and other overseas students.
So vastly more poor but smart kids could get to Oxbridge – WHY do you call that a “massively harmful social impact”?
I saw at close hand the impact on those rejected by grammar schools
I will never forget it
And the change you noted is not the result of the end of the grammar school system – it is the impact of neoliberalism
“I saw at close hand the impact on those rejected by grammar schools”
I’ve listened to Jonathan, he’s great – sometimes things work out for the best!
I too remember the detrimental effect of the 11 plus and saw many bright friends face rejection at such an early age. But maybe that was just a too rigid part of the system which could be amended. There was re entry from secondary schools to my Grammar at sixth form level. Maybe that could be applied for every year of schooling, a promotion/relegation system if you like. Then you could have both Academic Excellence and Opportunity for all.
if education is about someone ‘doing better’ that someone else then it is not education, in my view. If you are ‘bright'(which usually amounts to combinatorial capacity of the brain) then that is something that should have a social value and should increase the level of social responsibility. What we tend to have now is many ‘bright’ people going into investment banking which rewards the mental capacity to juggle an array of fast changing information and drawing rapid conclusions from it – there is no moral/social responsibility linked with this which, in my view, means intelligence is lacking.
Heard on a recent radio programme that a high proportion of those achieving grammar school places have been tutored. This means that many have to continue to be tutored in order to keep up. Where there are no grammar schools tutoring plays a big role in exam success. What an absolute disgrace this all is.