Rising inequality isn’t the problem

Laura Rapira on the Q&A panel just referred to the problem of rising inequality around the world as if it an unarguable problem.

There are similar increasing concerns being expressed about ‘inequality’ in New Zealand.

Income is just one aspect of inequality, but growing levels of inequality don’t necessarily indicate a growing problem.

If, say, twenty years ago…

  • the average income of the bottom 10 of people was $10,000
  • the average income of the top 10% of people was $100,000
  • the gap between the two is $80,000

…and the incomes of both have risen by 100% we would have:

  • the average income of the bottom 10 of people is now $20,000
  • the average income of the top 10% of people is now $200,000
  • the gap between the two is $180,000 (it has more doubled)

But this tells us nothing about the standard of living of the bottom 10% of people.

If inflation was high over the same period the poorest 10% would be finding things harder. Most of richest 10% will have had little trouble adjusting.

However if the incomes of the bottom 10% had been boosted ahead of inflation by greater tax redistribution (higher benefits and more tax advantages) they would be better off, regardless of the top 10% incomes.

But in the latter case we have a bigger envy gap.

Apart from that the size of the inequality gap isn’t the problem. The focus should be on helping the bottom 10% (and the bottom 50%) improve their standard of living, improve their education,improve their health, and improve their employment prospects.

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56 Comments

  1. David

     /  July 1, 2018

    Governments should concern themselves with equality of opportunity not outcome.

    Reply
    • Equal opportunity sounds good in theory but struggles in practice.

      While theoretically we may all have the opportunity to become Prime Minister or CEO of Fonterra or a surgeon getting generous public and private incomes, almost all of us can’t reach those positions or levels of earning,.

      Reply
      • David

         /  July 1, 2018

        Totally agree but if a government is to deploy its significant power and resources I would prefer they focus on giving even the most deprived the opportunity to thrive and succeed, if they do brilliant and at worst they may have a much better life.
        The shutting of charter schools, the abolition of national standards are two areas that disappoint me and the victims will inevitably be poorer children in poorer areas…they wernt a cure all but they helped bend the curve by holding teachers to account for outcomes.

        Reply
        • Gezza

           /  July 1, 2018

          Fortunately, what you prefer is not the sole determinant of what actually happens. Those opportunities you refer to already theoretically exist but there isn’t a level playing field for everyone to kick off from, & there are many factors that affect how well or how badly people can actually do & in what kind of environment. Everywhere in the world.

          Reply
          • Kitty Catkin

             /  July 1, 2018

            Even if the gap is now double, the lower lot are still on 10% of the top lot.

            Reply
  2. chrism56

     /  July 1, 2018

    In the example given above, the gap has stayed the same. The bottom 10% are only getting one tenth of the income of the richest 10%. It does illustrate how innumerate society has become. Why it is hard to take the people seriously. Like those that don’t understand the difference between GDP and foreign exchange earnings.
    What it does show is the truism for that old joke about 3 types of people understanding maths – those that do and those that don’t.

    Reply
    • Blazer

       /  July 1, 2018

      lets see you explain foreign exchange earnings…then..go on.

      Reply
      • chrism56

         /  July 1, 2018

        Foreign exchange transactions are counted once in the economies. > Put the same amount of money into the GDP and it is counted 5-10 times. That is why dairy in about 3% of our GDP but 25% of foreign exchange.

        Reply
  3. Alan Wilkinson

     /  July 1, 2018

    Rising inequality is a problem if it indicates increasing stupidity but not if it indicates increasing intelligence. Ask Rapira which it is.

    Reply
  4. Blazer

     /  July 1, 2018

    rising inequality is plain to see….only the wealthy can afford to own a home now.
    It never used to be that…way.

    Reply
    • “only the wealthy can afford to own a home now”

      That’s false. I know people on very modest incomes who have their own houses (albeit with mortgages).

      It’s certainly getting harder for people to buy their first home, especially in Auckland, Tauranga and Queenstown, but most New Zealanders have their own home.

      Estimated owner occupied dwellings as at September: 1,849,000
      Obviously many of those dwellings with have more than one occupier.

      Reply
      • Blazer

         /  July 1, 2018

        its not false because of a handful of anecdotes….with an average nationwide price of $670,000 please explain how an average wage can support a mortgage.

        https://www.radionz.co.nz/news/business/347860/housing-market-in-2017-prices-up-sales-down

        Reply
        • Most home owners don’t have $670k mortgages.

          Most first home buyers don’t buy new houses in their choice of suburb, they start at entry level.

          Reply
          • Blazer

             /  July 1, 2018

            ‘Most home owners don’t have $670k mortgages.’….O.K so what is the average mortgage then and how do they save 20% of 670k?

            Reply
            • Two separate issues.

              Most current home owners have purchased their first homes long before the average house price got to $670k.

              There certainly won’t be many first home buyers who can save a deposit for a $670k house, and house prices have risen alarmingly, but most first home buyers don’t buy average priced houses, they buy entry level houses in places they can afford them.

            • Blazer

               /  July 1, 2018

              where are these to be found…’ but most first home buyers don’t buy average priced houses, they buy entry level houses in places they can afford them.’

              where do they work?

            • 2Tru

               /  July 1, 2018

              Work long hours and save hard whilst living in cheap substandard accommodation, then talk nicely to their parents to reduce the mortgage to what they can afford. It’s not impossible, my son has just done it for a first home over $600,000. It’s not easy. Wasn’t when we bought our first home in the 70’s either.

          • Blazer

             /  July 3, 2018

            ‘Harshal Chitale, Auckland Council senior economist, says their analysis shows middle-class income groups would now even be unable to afford a home at the Kiwibuild cap of $650,000.

            A household would need to be earning $118,300 a year to afford a $650,000 home with a 10 per cent deposit, he said.’

            Reply
    • Alan Wilkinson

       /  July 1, 2018

      That’s clearly rising stupidity which has made councils ban affordable housing. Braindead stupidity of politicians and those who vote for them.

      Reply
    • Zedd

       /  July 1, 2018

      @Blzr

      I own my house, only because I got a redundancy payout from a longtime Govt. job.. It is a very run down, little shack.. down south

      I agree that houses in Akld, Q’town & other main centres are now just about unaffordable though, for families on ‘average wages’.. mostly thx to the financial strategies of the last Govt. that saw many of these cities become ‘millionaires row’ even for modest houses

      “Mind the Gap.. folks”
      hopefully this Govt. will ‘put the brakes on’ BUT will never be at ‘reasonable prices’ again

      btw; My parents bought their house in Akld 1970s for about $30k. I believe its now valued at $1.2mil (north shore). My Dad said he had to pinch himself to see how much prices have exploded.. although Im sure he is happy to now be a ‘millionaire’ (assets), when once he was just ‘working class’.. who luckily bought at the right time :/

      Reply
      • Alan Wilkinson

         /  July 1, 2018

        You own your own house only because it was built before regulations which now make it illegal to build it.

        Reply
        • Zedd

           /  July 1, 2018

          maybe so AW.. but also it is not in Akld, where I grew up.. or even Te Ika a Maui.
          I have lived here for over 10 years & prices here have already more than doubled.

          Reply
          • Alan Wilkinson

             /  July 1, 2018

            No maybe about it. Yes, land prices are cheaper down south but even land subdivisions and consents to build have been severely restricted and heavily extorted by councils everywhere.

            Reply
            • Gezza

               /  July 1, 2018

              Are the various inspectors council employees or contractors?

            • Kitty Catkin

               /  July 1, 2018

              Council, I think.

            • Alan Wilkinson

               /  July 1, 2018

              Mostly employees. It’s not the staff, it’s the politicians who idiotised the system.

  5. Kitty Catkin

     /  July 1, 2018

    Average can be very misleading. It doesn’t mean that most houses are $670,000.

    Reply
    • Zedd

       /  July 1, 2018

      There are still houses in Dn for under $300K but jobs & wages aren’t likely the same as in Akld etc.

      Reply
      • Kitty Catkin

         /  July 1, 2018

        They won’t be that different for the same work, surely ?

        Small towns are in reasonable commuting distance from Auckland, One man actually spent less time going from here than he did going from the North Shore, which pleased him as a nice bonus.

        When I was in Cambridge a few years ago, my eye was caught by a house in an estate agent’s window – $80,000. It looked a good house, too, Just as I was on my way in, I saw that it was in Tokoroa. Bugger.

        Reply
        • Zedd

           /  July 1, 2018

          when I was in Sydney.. I commuted about 1.5 hours each way, but they have decent express trains. There was work, were I lived (out west) but alot less & no guarantees of similar wage;
          I think Akld maybe similar, shame about their transport system or lack there of ? 😦

          Reply
      • David

         /  July 1, 2018

        And in Christchurch and most other cities. A 400k house is a doddle for a young couple making 50k ish each, they use their kiwisaver and some savings and the banks are doing 85% at the moment.
        With interest rates at 4.6% it’s cheaper than renting

        Reply
    • chrism56

       /  July 1, 2018

      Yes, the median house price, or even the lower quartile is a lot more relevant for first home buyers.

      Reply
      • Blazer

         /  July 1, 2018

        nevertheless no one can deny this…’rising inequality is plain to see….only the wealthy can afford to own a home now.
        It never used to be that…way.

        Reply
        • Kitty Catkin

           /  July 1, 2018

          If that’s so, why do more people own than rent, why would a wealthy person want to live in a small, ordinary house. and why are ordinary people who aren’t wealthy living in their own houses ? Look at all the mortgage ads. A millionaire wouldn’t need a mortgage for a suburban house such as most of us live in.

          Reply
        • Alan Wilkinson

           /  July 1, 2018

          That was before your Clark Labour Government made Councils responsible for quality and durability and before half-wits Palmer and Upton destroyed property rights with the RMA.

          Reply
        • Trevors_Elbow

           /  July 3, 2018

          sigh….

          What was the home ownership rate in in 1970 and what is it now? Its only different by a few percentage points.

          The problem is supply and the RMA restrictions which inhibit rapid building AND make land banking within urban limits hugely profitable

          http://archive.stats.govt.nz/Census/2013-census/profile-and-summary-reports/century-censuses-dwellings/ownership.aspx

          If we look at the graph in the above link to census data on home ownership we see home ownership peaked in 1991, the year the RMA Act was enacted and has declined ever since….

          Reform the RMA and open up land for new suburbs around the major population growth centres and prices will stabilise and potentially decline, and we will see a lift in home ownership rates back towards the PEAK value of 70 odd percent…

          Pretty simple really…

          Reply
          • Blazer

             /  July 3, 2018

            today a home costs someone 12x ave yearly earnings….70’s around 3x.Says it all really….sigh*…ownership stats going down…quite rapidly.

            Reply
            • Trevors_Elbow

               /  July 3, 2018

              WFF has skew pay rates. Poorly regulated Building Materials market place has skew material costs upward AND stupid RMA and Council planners have stuff the land market forcing limited supply pushing prices up…

              Sort the RMA and open land for housing – its bloody simple…

            • Alan Wilkinson

               /  July 3, 2018

              Yes, it’s simple and obvious but don’t expect Blazer to stop spinning his crap. He is impervious to facts and truth.

      • Kitty Catkin

         /  July 1, 2018

        Many people think that average life expectancy means that people in the past didn’t live to be old, but many did. Look in any old cemetery.

        Average and median/mean can be confusing; maths teachers seem to have trouble explaining this to their pupils. I will confess to finding them a bit confusing myself – but at least I know that I do.

        Reply
        • 2Tru

           /  July 1, 2018

          Simple really. Mean price s Average price, Median is the middle point of all prices. Take all Auckland sales out of the equation and both mean and median price for the rest of NZ (combined) will fall substantially.

          Reply
          • 2Tru

             /  July 1, 2018

            mean price IS average price

            Reply
          • Kitty Catkin

             /  July 1, 2018

            I know, but I always have to stop and think about it :-/

            Reply
          • Kitty Catkin

             /  July 1, 2018

            Grrrroan, try telling that to some people.

            They will insist that the average means….the usual. Ergo, people have to pay $670,000 for a house now.

            Apartments are often surprisingly low-priced.

            Reply
      • Kitty Catkin

         /  July 1, 2018

        I have just seen some readymade houses that even have the taps and looroll holders in them. All you need is furniture and curtains. they start at $107,000 for a 2 bed. One on TradeMe, a one bedroom one, was $50,000, It was small but looked like a well-designed little place.

        Reply
  6. PartisanZ

     /  July 1, 2018

    Taking the current situation to its ill-logical conclusion, land & housing, its price constantly escalating, increasingly falls into the hands of fewer and fewer people, creating ever more tenants and ever fewer owners …

    A population who have experienced days of much better equality will eventually rebel, and the State … hopefully their elected State … will have to step in and become the ‘owner-on-behalf’ of all property in the soil … finding new forms of possession and tenure that provides for and respects everyone … or at least the maximum number possible …

    Under our present Westminster-style Parliamentary Democracy this might be quite difficult to reconcile with Te Tiriti o Waitangi …

    However, a Representative & Direct Democratic Republic that reconciles ideal European-style “governance” with Te Tiriti o Waitangi and Tikanga in advance of recreation of the Commons is really quite easy to imagine …

    Reply
    • PartisanZ

       /  July 1, 2018

      “Of course a given order necessarily exhibits a tendency to stability. But an order, the sole content of which is just this tendency, does not deserve its name. It is only stabilized disorder” – Frank E Warner ‘Future of Man’ ….

      Commenting “… there is no sign anywhere of a general guiding idea, unless it be maintenance of the existing state of affairs … which appears at the moment to best serve the selfish interests of these groups [large landowners, industrialists, financiers, the military and officialdom]” …

      Reply
  7. Alan Wilkinson

     /  July 1, 2018

    Actually, the problem is not increasing inequality. It is that Ardern and Bridges are too stupid to be PM and Peters can’t be trusted. We need to find another smart private sector PM like Key (or Trump!)

    Reply
    • PartisanZ

       /  July 1, 2018

      Well Alan, that’s the “general guiding idea” at the moment … a private sector PM to serve corporate-capitalist-political elites … one of the outcomes of which is the ever continuing accretion of property in the soil to a decreasing number of people …

      In the sense that this will “hasten the end” … that is, hasten the New Beginning … it is a good thing …

      Reply
    • Blazer

       /  July 3, 2018

      ‘We need to find another smart private sector PM like Key ‘

      Key ‘I want to ensure that NZ’ers become tenants in their own country’.

      Reply
  8. PartisanZ

     /  July 1, 2018

    Isn’t the problem rising inequality?

    Reply
    • Kitty Catkin

       /  July 1, 2018

      No.

      Reply
      • PartisanZ

         /  July 1, 2018

        Now, seriously Miss Kitty … What sort of argument is that?

        “No.” N ………. O …………

        Have you got a citation or reference to back that up? How about a link?

        Reply
  9. Rickmann

     /  July 3, 2018

    I work in Auckland as a taxi driver and have lived with immigrants for the last 5 years and am surprised to find how many own their own houses. This could be because everybody in the family who can works, at least until they are in to the house, and they live frugally and do not piss their income away as so many Kiwis do.

    Reply
    • Blazer

       /  July 3, 2018

      yes they have a co operative mindset….not every man for…himself.

      Reply

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