Wednesday, Nov 25, 2009
Not income inequality, but wealth inequality
Telegraph blogs: Inequality in Britain is of developing world level
The richest 1pc in the UK hold 70pc of the country’s wealth. That there is this divide between rich and poor is not exactly new – but the scale of it, and the likelihood that it is not being narrowed by the financial crisis, is a big worry. Indeed, according to the report, in the US the same figure is far, far lower at 48pc, and in Australia only 34pc. The report is interesting because, unlike the traditional measure of inequality, the gini coefficient, it focuses not on income (the flow of money) but on actual substantive wealth (the stack of it that sits beneath us). [The report measures wealth stored in 'financial assets' - no indication whether that includes land & property.]
Posted by drewster @ 11:15 PM (1694 views) Add Comment
21 Comments
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2. krustyatemyhamster said...
"The Great Depression and its aftermath most certainly did, but despite the fact that the gini coefficient (certainly in the US, probably in the UK) are at levels comparable with the late 1920s and early 1930s, we haven’t yet seen any kind of dramatic social backlash as a result."....yet.
3. tenant super said...
There will always be a small cohort of super rich. Especially if we are, as the article points out, a haven for the wealthy.There will always be those who are destitute (usually due to an irregular immigration status or multiple social problems, in particular, chemical addiction). What's worth examining are the percentiles where most of us sit. Here you see redistribution where a person earning 70k is pulled down to 50k so the person earning nothing gets 14k in handouts. In an ideal world the very wealthy will subsidise the genuinely poor and those of us in the middle will pay in about the same as we get out in services. But the wealthy will move abroad if overtaxed and the current political class have no will to address the financial elite anyway. So it is the coping classes who are hammered.
I am unsure how helpful how reports on wealth distribution actually are. Imagine I buy a flat and I can only afford a small two-bedder in Nunhead (between Peckham and Dulwich) and have no money left over after my living costs and my kids attend a very poor primary school. Mr Barcadi Geezer, a single dad works as a part-time delivery man and lives in social housing in Dulwich. His flat is much bigger than mine and his kids attend an exellent primary school and get free school meals. He's a decent sort of bloke and wants his children to do well, one of them even wins a full-fees bursary for a local independent secondary school a luxury I cannot afford but am too 'wealthy' to qualify for a bursary.
I have a private pension scheme, a flat, savings and I even own some moderately valuable fine art so my financial assets are far higher than Mr BG but but who has the better life?
4. mark wadsworth said...
A large degree of income inequality is inevitable, because some people are cleverer, luckier, more determined or cunning than others etc, this we can live with perfectly happily, provided there is a welfare system to keep people at the bottom above the bread line.
The best thing we can do for social mobility, both up and down, is to hand out education vouchers so that children of lower income people have a better chance of a decent education, rather than have the government run education, which has been a manifest failure.
The "wealth inequality" they talk about is largely down to land and property ownership (the inevitable result of Home-Owner-Ism and a misplaced reverence for descendants of Norman invaders - something the Torygraph is keen to perpetuate). We can level that up very easily by liberalising planning laws, building more social housing (so that's there's no overriding need to jump on the property ladder and make yourself a debt-slave) and by replacing as many taxes as possible with Land Value Tax (as well as slimming down the quangocracy, who are the new blood-sucking aristocracy).
The proceeds of LVT (to the extent not required to replace existing taxes and cover core functions of state) can be dished out as a Citizen's DIvidend, so that everybody benefits from economic growth, not just the private tax collectors we laughingly refer to as landowners or home-owners.
It is as simple as that, the idea has been around for centuries. And any economic problems that can't be solved by this are quite simply insoluble.
5. mark wadsworth said...
I like this comment from the article:
"The bank bailouts are a state handout for the wealthy – they protect cash in banks and prevent a property price correction. The bailouts will be paid for through tax on income i.e. people earning now when they benefit those 1% who already own 70% of the assets most. It would be fairer to pay for the bailouts with a one-off wealth tax on the property assets of the super-wealthy."
6. letthemfall said...
Wealth inequalities will continue to exist - to some extent. But that is not the point. Some people do inevitably have more valuable talents, or spend longer in education, or work longer hours; but the wealth inequalities today are due to economic and social structures, particularly the effect of China entering the global economy on a large scale, and undertaxing the rich.
The land distribution dating back to Norman times is a genuine problem, and the idea of taxing property makes sense. But it also makes sense to tax income progressively too: in my view high earners rarely justify their income, and the example of the banks demonstrates this very clearly. By rights the senior types there should all be bankrupt, such is the level of incompentence. But they continue to thrive because the financial structures built up renders normal company collapse impossible. Taxing huge incomes at a higher rate than present is not materially different to taxing land; both represent a redistribution of wealth that is of benefit to society in general.
No tax system will be perfect, but it should be as fair as possible. At present it is not.
7. braindeed said...
There was a time when reducing inequality was a common rail with Red and Blue (admittedly we're talking of Ted heaths day).....times change and no-one gives a fig anymore.Trickle down? Yes, sweat,down the clunge of the poorest.
8. mark wadsworth said...
LTF, I'm a flat taxer as well as a land taxer.
If we didn't have a loony Home-Owner-Ist economic dictatorship, then banks simply wouldn't be so seemingly big or important. They can only pay huge bonuses because the system is rigged in their favour. If we went back to a good old fashioned building society type banking system - which actually serves a very useful role in the economy - then they would be lucky to earn £100,000 and not £millions. Tackle the causes, not the symptoms, is my motto.
9. letthemfall said...
mw: "LTF, I'm a flat taxer as well as a land taxer."
No surprises there. You have something in common with Digby Jones (though perhaps you're not, like him, in favour of legalising prostitution and drugs).
The last time a flat tax was suggested was the jolly old community charge - one or two objections there. Agree with you about building societies though. But all large companies suffer the same problem - the ability of certain individuals to extract wealth out of all proportion to their contribution.
10. mark wadsworth said...
LTF, like Digby Jones, I very much support the idea of legalising, taxing and regulating prostitution and drugs. Other countries have tried it in one form or another and it works fine. We get less of the bad effects, more of the good effects and a shedload in taxes and huge savings in policing, crime etc.
Community Charge is not a 'flat tax', it is a Poll Tax. What I mean is one flat tax on incomes (at whatever rate, the lower the better) one flat tax on land values (at whatever rate, the higher the better) and a Citizen's Income-style welfare scheme (I may have mentioned that). It is idiotic to support Citizen's Income and Poll tax as the two would cancel out.
Part of the reason why these managers and directors get super-star salaries is because of yet another idiotic idea espoused by all politicial parties, that people should be 'encouraged to save for their retirement', i.e. reduce taxes on people with surplus income and increase taxes on people who need every penny. The result is that there is no mass share-ownership, and the pension fund managers are in cahoots with the Boards of Directors and they just help themselves.
11. Mr G said...
One of the comments on the article hits the nail straight on the head:
"Millions of people in Britain regard themselves as well-off as they have a house ‘valued’ at £500,000, ignoring the £480,000 mortgage"
That Mark Wadsworth, is true Home-Owner-Ism and what is wrong with this country.
You attacked me some while back for daring to say that I had worked my way up from the shop floor, managing to retire at 60, paid my mortgage by going without foreign holidays etc and I intended to fight tooth and nail to pass my property on to my kids, all of which, made me guilty of Home-Owner-Ism.
I couldn't give a damn about the price of my house but one thing I will always do , and I'm sure you do the same, is to look after my own interests and those of my family whilst trying not to do the dirty on other people.
Attack the dipst*cks who think they are well off when they have a £480K mortgage on a £500K house, not the ordinary person who works their ar*e off for 45 years and keep themselves out of debt.
12. mr g said...
One of the comments on this article hits the nail on the head:
“Millions of people in Britain regard themselves as well-off as they have a house ‘valued’ at £500,000, ignoring the £480,000 mortgage”
That Mark Wadsworth is true Home-Owner-Ism.
You attacked me some while back for daring to say that I had worked my way up from the shop floor, managing to retire at 60, paid my mortgage off by going without foreign holidays etc and I intended to fight tooth and nail to pass my property on to my kids, all of which, made me guilty of Home-Owner-Ism.
I couldn’t give a damn about house prices but one thing I will always do, as I’m sure you also do, is to look after my own interests and those of my family whilst trying not to do the dirty on other people.
You should be attacking the dipst*cks who think they are well off when they owe £480K on a £500K house, not the ordinary person who has worked their ar*e off for 45 years to try and improve their lot, that is the true social mobility so beloved of our government.
13. letthemfall said...
mw
Well, I must admit I'm not too familiar with those countries (I know Holland, though I don't think drugs are actually legal there); but there are reasonable arguments in favour.
CC is a flat tax in the sense that everyone pays the same regardless of income. I tend to feel flat income tax is inherently unfair: since taxation goes towards public services from which everyone, more or less, benefits, it seems right that one should contribute more as income rises in the interests of fairness and equality.
I'm not sure I understand your 3rd paragraph, but I agree that pension tax relief benefits high earners very unfairly. Are you saying that money funnelling into shares via pensions, boosting share prices, is the reason for high salaries? I agree that bosses effectively help themselves; one restraint would be a progressive income tax, as well as shutting down all the avoidance loopholes. Happily this is about to be addressed to some extent. In the end I would like to see a fairer wealth distribution in society, however it might be achieved.
14. mark wadsworth said...
LTF, now I am puzzled. Even with a flat income tax of 30% or 40% or whatever, somebody earning £1,000,000 pays fifty time as much as somebody earning £20,000. Why should he or she pay sixty or a hundred times as much?
Mr G, I'm attacking those people who "do the dirty on other people.", i.e. the Home-Owner-Ists who are keen to pull up the drawbridge via bank/homeowner bailouts and NIMBYism.
15. letthemfall said...
mw
Yes, but the question is do they create 50 times as much value. Do they really merit the income difference?
16. mr g said...
MW@14
I agree 100% with your sentiments, thanks for the response.
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