Piketty thinks the 1% should cough up 80%. Discuss
Your guide to the Great Piketty Debate. Hint: 'Wealth' is relative
There's gold in that pension pot
Never mind your investments, your pension is worth a lot
The problem becomes even more stark with pensions provision. These wealth figures deliberately exclude the value of the state pension from any calculation of wealth. But it's an inflation-protected annuity worth (as the pensions guarantee rather than the pension itself) some £130 a week for life. At age 65, it would cost you around £150k to buy one of those. So, everyone gets, through that welfare state and state pensions system, £150k of wealth, surely?
I have actually gone through this with the professorial types who estimate wealth inequality and they've all nodded their heads and agreed that this wealth just isn't included in any of the calculations.
We do make these adjustments when we look at income inequality though. We can and do calculate both inequality and poverty by looking only at market incomes. Then we calculate them again by looking at after tax and after benefits incomes. Sweden and the UK are broadly similar by those market measures: Sweden is very much more equal, has less poverty, after we look at tax and benefits – because they tax more and have higher benefits. The poverty rates that get reported are always added up after all of the things we do to change the original distributions (except for the US for odd historical reasons). We do not make any of these adjustments when we look at wealth inequality.
Which brings us to Worstall's Fallacy: the idea that we cannot decide we must do more to solve a problem without looking at the effects of what we are already doing to solve said problem.
We cannot insist that taxes and benefits must be higher by looking solely at market incomes. We need to go look at what everyone has after tax, after child credit, working tax credit, unemployment pay, pensions and so on – only then can we decide whether we should be doing more (or less). This is something we normally do do with incomes and is something we're not doing with these wealth calculations.
To give an example of how far inequality declines when we really include everything – such as NHS, education and other government-provided services – the TUC estimated that market incomes have a ratio of some 30:1. That's the 90/10 ratio, between those just on the cusp of being in the top 10 per cent and those on the limit of the bottom 10 per cent of market incomes. When we add in everything that we do to reduce that, we get a consumption difference of some 6:1. Maybe that's equal enough, maybe that's still a shocking level of inequality. But it's certainly a very different level of it, isn't it?
And so it is with the measures of wealth inequality that absolutely everyone is arguing over. The only things that are being considered are marketable wealth, housing, private pensions (not really marketable but still) stuff and financial assets. What's not being included, not at all, is all of the things that we do to equalise that wealth. We're committing Worstall's Fallacy by simply not including any of the influences or outcomes of the welfare state.
And this is the real problem with Piketty's book. It's nothing to do with whether he's coded errors into his spreadsheet, and nowt to do with whether market wealth inequality is rising or not. The problem is that market wealth inequality simply isn't as important as it once was. Even if it did rise to 19th century levels, it still wouldn't be all that important. For we already equalise wealth, income and consumption opportunities through the welfare state.
Given that the point of the welfare state is to do that equalising, it seems a very odd thing for everyone to be forgetting about it when we discuss this subject. He may or may not be wrong about what is happening, but he's definitely wrong over how important it is. ®
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