My Times column this week was on the facts behind the
inequality debate:
The Swedish data impresario Hans Rosling recently asked some British people to estimate
the average number of births per woman in Bangladesh and gave them
four possible answers. Just 12 per cent got the right answer (2.5),
whereas 25 per cent of chimpanzees would have got it right if the
answers had been written on four bananas from which they could
choose one at random. Remarkably, university-educated Britons did
worse, not better, than non-graduates. It is not so much what you
don’t know as what you know that isn’t so.
Hold that thought while I introduce you to Tom Perkins, the
Silicon Valley venture capitalist and former husband of the crime
writer Danielle Steel, who stirred up fury in America when he wrote to The Wall Street
Journal last month complaining about a rising tide of hatred
against the very rich, and indirectly but crassly comparing it to
Kristallnacht. A few days later President Obama used his State of
the Union speech to take aim at inequality. In this country, too,
inequality is one thing that much rankles with most people, as the
50 per cent tax rate row reveals.
The puzzling thing about this is that by any conceivable
measure, absolute poverty has fallen dramatically over the past few
decades, so why should it matter if the rich get richer? Today’s
British poor spend half as much of their income on food and
clothing as in the 1950s, while working many fewer hours, living
about eight years longer and having access to phones, cars,
medicines and budget airlines that would have amazed even the rich
in the 1950s.
Moreover, here’s a question I’m willing to bet that chimpanzees
would do better than people at: given that inequality has been
rising recently in China, India, America and many other countries,
is global inequality rising or falling?
The answer: it’s falling and has been for several decades,
however you measure it. The reason is that people in poor countries
are getting richer more quickly than people in rich countries are
getting better off.
That fall in global inequality has accelerated since the start
of the financial crisis. As Africa now experiences record rates of
growth, the number of people trying to live on $1.25 a day is
plummeting fast. Mr Rosling likes to show two charts in his talks:
the graph of global income was once a two-humped camel; now it’s a
one-humped dromedary, with the vast majority of the world’s people
in the middle.
Here’s another question that I fancy the chimps would beat the
people at: did poverty and inequality in Britain increase or
decrease as a result of the recession? The answer is that both
fell. Inequality has fallen to levels not seen since the mid 1990s,
as it usually does during recessions, though it is still higher
than it was in the 1970s. Meanwhile the Left’s favourite measure of
poverty — those earning less than 60 per cent of the median income
— has by definition gone down, because median income has gone down. Redefining poverty in this
relative (and very inadequate) way has therefore rather
backfired.
If you measure consumption inequality, it is far lower than
pre-tax income inequality, because the top 40 per cent of earners
pay more in than they get out, while the bottom 60 per cent get
more out than they pay in. Indeed, in Britain the top 1 per cent
generate about 30 per cent of the total income-tax haul. After such
redistribution, the richest fifth of the population has only four times as much money to play with
as the poorest fifth.
With big increases in housing benefit and other redistributions,
consumption inequality may be as low as it has ever been. Add in the
value of pensions (including the state pension), free healthcare,
the fall in the price of food and clothing relative to wages, plus
the dramatic fall in the cost of much technology and it is clear
that for most basic needs, the country has never been less poor or
less unequal. A smartphone’s search engine may be about as capable
as a plutocrat’s full-time secretary was in 1960.
Imagine being told that one of the people in a meeting is a
genuine billionaire (I owe this idea to Professor Don Boudreaux). How would you tell
which one? His bodyguards, private jets and grouse moors are
outside the room; his shirt and jeans are unlikely to give him away
(as they would in 1900); his Rolex could be a cheap imitation; his
teeth, girth and height are probably unremarkable (unlike in 1800);
even his Diet Coke is the same as everybody else’s. Much more than
in the past, most inequality in this country these days — though by
no means all — is in luxuries, rather than necessities.
Here’s another question where my money is on the chimps: does
income generally grow faster for people in the lowest fifth of the
population or people in the highest? It’s the lowest, because many of those people
are young, low-paid people just starting out on their careers,
while many of the richest fifth are older people at the peak of
their pay, about to retire. That is to say, the category “poorest
fifth” may not seem to show much change, but the people in it do.
Income mobility is far from dead: 80 per cent of people born in
households below the poverty line escape poverty when they reach
adulthood.
None of this is meant to imply that people are wrong to resent
inequality in income or wealth, or be bothered about the
winner-take-all features of executive pay in recent decades.
Indeed, my point is rather the reverse: to try to understand why it
is that people mind so much today, when in many ways inequality is
so much less acute, and absolute poverty so much less prevalent,
than it was in, say, 1900 or 1950. Now that starvation and squalor
are mostly avoidable, so what if somebody else has a yacht?
The short answer is that surely we always have and always will
care more about relative than absolute differences. This is no
surprise to evolutionary biologists. The reproductive rewards went
not to the peacock with a good enough tail, but to the one with the
best tail. A few thousand years ago, the bloke with one more cow
than the other bloke got the girl, and it would have cut little ice
to try to reassure the loser by pointing out that he had more cows
than his grandfather, that they were better cows, or that he had
more than enough cows to feed himself anyway. What mattered was
that he had fewer cows.