Monday, September 20, 2010

Party Political Broadcast On Behalf Of The Envy Party

BBC R4 has just completed a week of propaganda broadcasts for the Envy Party, funded by your telly tax (you can listen again here).

They conducted a survey asking poor people if rich people get paid too much. And guess what - it turns out they do! It turns out that FTSE chief execs shouldn't get the average £2.1m pa they apparently pull in today, but only £118k - a cut of 94%. And at the other end, care assisitants should get an immediate raise of 50%. The BBC has a related quiz online, where you can test your own envy responses, and impose your own ideas of fair pay on our turning world.

Where to begin?

First of all, those of us who recall the 1970s well remember what happens when politicos try to impose their own ideas of fairness on the labour market. Back then we had punitive taxation intended to squeeze the rich until their differentials squeaked. We also had incomes policies specifically intended to stop the market operating. The result? You know the result - enterprise died, Britain suffered a catastrophic brain drain, and we slipped way down the international economic league tables. All of us were made poorer.

Ah, say the "new" socialists, money isn't everything. We might have been poorer back then, but we were all so much happier. No, don't laugh - that's what they say. Because incomes were much more equal, there was much less envy eating away at our souls. We were all in the same boat - just like the War.

How quickly these new socialists forget. Back in the 70s Red Robbo/King Arthur disputes over relative pay were much more rancorous and damaging than they are now. Why, even respected philosophers from the socialist paradise of Sweden were racked with envy:

No, the 70s should have proved once and for all that attempts to impose a "fair" income distribution not only make us all poorer, but they also leave us feeling just as envious and angry as the BBC reckons we are today.

Which of course is why socialists tend not to dwell on history - ie our actual experience. Instead, they point to how much better things are in more equal societies elsewhere. Supposedly.

The latest attempt to prove this got a lot of BBC airtime last week. It's a book called The Spirit Level which we blogged here. Written by a couple of left-wing academics, it has already become a key text for those advocating big increases in taxation and spending aimed at levelling out income inequalities, presenting as it does a slew of statistical evidence purporting to show that our big social maladies - like low life expectancy and mental health - are largely driven by income inequality.

The BBC and the rest of the left have adopted the book as the new gospel. But in reality, it is one of the most astonishing concoctions of statistical fudge and flummery you are ever likely to see. Once you start to probe the stats deployed they disintegrate.

The BBC's own Tim Harford did a pretty good demolition job when he interviewed one of the book's authors (a social epidemiologist, no less). His questions comprehensively undermined her credibility, although he was far too polite to dish out the humiliation the book truly warrants (do listen again here). The TPA paper we blogged here - written by three Swedish economists - does an even more comprehensive job. In fact, The Spirit Level turns out to be so bad, soft-hearted Tyler almost feels embarrassed for the authors.

Which kind of makes you wonder why the left still quote it as being gospel. Except of course, socialists have never let the facts get in the way of a good story.

The truth is that despite all the BBC hand-wringing, it is by no means clear we are as unequal as claimed. According to the most recent OECD analysis (ie real properly based stats), we rank well under the OECD average for the proportion of the population living below 60%, 50%, and 40% of median income:

In fact, as we can see, on this straightforward measure, Britain (GBR) is more equal than most of our major competitors, including Germany, Italy, Canada, Australia, Japan, and the US.

Where we seem to differ is that we do seem to have much higher rewards at the top end of the income distribution, which is why on some distribution measures we come out as being relatively unequal (eg the Gini coefficient).

But we really do need to remind ourselves of the benefits that have flowed from the increase in top pay since the bleak 70s. The boost to enterprise, and the re-rating of the UK as a good place to make money.

Because it isn't just the rich who have benefited. Despite the claims of the left, there have been trickle down benefits to the poor. The OECD calculates that from the mid-80s to the mid-00s, the real incomes of those in the bottom 25% of the UK income distribution increased by 1.6% pa. In contrast, in egalitarian Sweden, they only increased by 0.9% pa. So over the entire 20 years, our poor saw their incomes grow by 37%, compared to only 21% in Sweden.

Ultimately, it does come down to that simple old choice - would you rather be equal and poor, or unequal and rich? The left deny the choice is necessary, but those of us who are guided by what happens out in the real world know different.

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