I wrote about inequality here yesterday and the usual range of nearly anonymous right wing trolls and astroturfers were out in force to say that inequality in the UK has gone down according to IFS and OECD measures since the coalition has been in power.
There are two obvious reasons. The first is that the wealthy are now so few in number but so immense in value that survey data does not pick them up.
The second, as the Tax Justice Network explain here, is that so much wealth is now offshore and hidden from view it does not show up in the data used to calculate Gini coefficients that measure inequality .
Of the two the latter is, I am sure, the mist significant explanation for this apparent and glaringly obviously wrong statistical aberration. Interestingly, Thomas Piketty endorsed TJN's finding.
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The underlying problem/issue here is that traditional methods used to measure inequality – such as the Gini – were not designed to deal with some extremely important features of the contemporary environment/context that they are still being applied to. Specifically, as you say, and as is pretty obvious from the TJN report you link to, that crucial data is “hidden” and thus the result of any analysis using methods that don’t attempt to compensate (or triangulate) for this are distorted and partial.
I should add that I have no doubt that precisely because this approach results in an under-reporting/under-representation of inequality there are many organisations and individuals who will insist we continue to rely on the use of such outmoded methods. Ultimately it camouflages an ideological agenda the outcomes and impacts of which your report on daily on this blog.
Thanks
¨The Gini Coefficient measures the concentration of incomes in the nation, with a higher Gini Coefficient value implying more concentration. A feature of the Gini Coefficient is that an increase in the incomes of the rich with no change in the incomes of others will raise the Gini Coefficient¨
Presumably that would imply that a greater rise in the income/assets of the rich will still raise the Gini coefficient, even if the income of others fall?
http://www.nber.org/feldstein/pi99.html
Excellent post, Richard. I’d add that the Family Resources Survey is not very useful for looking at the super-rich because it undersamples the top 1% – and the top 0.1% are pretty much absent. HMRC administrative data on top incomes from tax returns are much more reliable at the top end and they show huge increases in inequalities in recent years. Also, the FRS and HMRC data look at *income*, not wealth – to look at wealth we have to use the Wealth and Assets Survey (or the HMRC data from estate returns for inheritance tax, but that’s a very small sample of the whole population.)
Agreed
The wealth data looks very dodgy too: just doing some work on it
I see my comment was deleted – for reasons unknown. I will try again.
“The first is that the wealthy are now so few in number but so immense in value that survey data does not pick them up.”
It is clear that you don’t understand how a Gini is calculated. It is a Lorenz function and you simply don’t need data from individuals unless you are doing a discrete calculation – which you would never do for a population this size. The population is grouped into (income) bands. The calculation doesn’t try and measure each individual’s share of income against the population as a whole.
The TJN piece doesn’t offer anything new either – certainly no new data, analysis or conclusions are presented. All it tells us is that Gini coefficients may be wrong (well known).
They also confuse wealth and income throughout the piece, and make no distinction between pre and post tax/transfers Gini’s. Pre T+T Gini’s have increased, but that Gini is essentially immaterial, as what matters is how much money people have AFTER they pay tax and receive benefits etc. The Post T+T Gini tends to have dropped. There is also no distinction between wealth and income. Some countries have very low income Gini’s but very high wealth ones. It is very dangerous to use many wealth inequality statistics, not least the Gini, because it takes no account of age demographics. Quite simply, older people tend to have accumulated more wealth than younger people.
Howard Reed has dealt with this issue and is an expert on such matters
You had already been warned re section 5 of the comments policy
I repeat the warning
Ah the catch-all section 5 comes out again.
Howard, being an economist, should know that the UK Gini can be and is calculated from HMRC data, and that the top 1% or even 0.1% being under-represented makes no material difference in the calculation given that it uses income deciles. As such someone in the top 1% is treated for the purpose of calculation exactly the same as the general top 10%.
“HMRC administrative data on top incomes from tax returns are much more reliable at the top end and they show huge increases in inequalities in recent years.”
This isn’t a measure of Gini inequality. This is looking at discrete incomes for a small group of the population as a whole. Whilst it might well be true, suggesting the super rich are getting richer faster than the general populace, it doesn’t mean inequality as a whole is increasing – measured by the post tax and transfer Gini it is declining.
Do remember that the Gini is a statistical tool. As an example, if a large population was all earning roughly the same amount then the Gini would be close to zero. If a small number of that population became significantly richer (in income terms), the Gini would barely budge as it looks at the population as a whole, not by comparing outliers.
And we know as a result – which you ignore – that Gini is as a result producing seriously misleading data
You refuse to acknowledge this
Wise people disagree with you
Debate over
Section 5 will apply