Original URL: http://www.theregister.co.uk/2014/03/20/worstall_oxfam_outrage/

Oxfam, you're full of FAIL. Leave economics to sensible bods

Five families own more than 20% of the UK do? Rubbish

By Tim Worstall

Posted in Government, 20th March 2014 10:03 GMT

As I become ever more viciously right wing with age, I become ever more disappointed with Oxfam.

It's not just because I have left behind the views of Genghis and am galloping up close behind Attila. It's rather that the organisation itself has changed from being that well-meaning, thoroughly humanitarian organisation that doled out the food aid into just another lobbying group for the usual leftoid nonsense.

And what worries me perhaps most is that they seem to be remarkably uninformed about the world they wish to change.

The latest example is their shock-horror report about the extent of wealth inequality in the UK. Here's the major point of it:

The scale of Britain's growing inequality is revealed today by a report from a leading charity showing that the country's five richest families now own more wealth than the poorest 20 per cent of the population.

The full "report" (or "press release" as it would be better termed) can, through the miracle of archiving files, be read here. (.doc, not many kb)

I read this and thought, "well, yes, this is obvious and what the hell's it got to do with increasing inequality?" Of course Gerald Grosvenor (aka Duke of Westminster) has more wealth than the bottom 10 per cent of the country put together. It's obvious that the top five families will have more than 20 per cent of all Britons. Do they think we all just got off the turnip truck or something?

They've also managed to entirely screw up the statistic they devised themselves by missing the point that if you've no debts and a £10 note then you've got more wealth than the bottom 10 or 20 per cent of the population has in aggregate. The bottom levels of our society have negative wealth.

Do note that this could be true even if we had perfect income equality, for there's a lifetime cycle to wealth. Take a newly minted graduate carrying £30k odd of student debt. Unless they're from the lucky sperm club they've got negative wealth. Their degree might have cost them that debt, it might well be an asset that will earn them hundreds of thousands over their lifetime, but it's not a saleable financial asset, so it's not wealth.

So, at least under the new dispensation, we would point out that thoroughly well-rewarded professionals, as all of us are, will spend some part of our lives in that bottom 10 or 20 per cent, wealth-wise. That's not all, of course. You can be running along in a well paid job, be renting, carry a bit of credit card debt and have no net wealth. It's an absolute certainty that there are people out there on £60k a year who have negative wealth.

Then we come to the downtrodden poor

Given what we classify as wealth, the poor have no assets at all. Property, financial assets (stocks, bonds etc), private sector pension plans, these are all pretty obviously wealth.

Americans queuing for free bread under a banner reading: World's highest standard of living ... the American way

Negative: What wealth?

But then the state pension is also wealth: it's a promise of a future stream of income. That is indeed wealth just as much as a share certificate or private pension is. But we don't count that state pension as wealth in these sorts of calculations.

The right to live in a council house at a subsidised rent of the rest of your life is wealth, but that's not counted either. Hell, the fact that we live in a country with a welfare system is a form of wealth - but we still don't count that.

Doing this has been called (not by me, originally anyway) committing Worstall's Fallacy. Failing to take account of the things we already do to correct a problem in arguing that more must be done to correct said problem. We already redistribute wealth by taxing the rich to provide pensions, housing, free education (only until 18 these days) and so on to people who could not otherwise afford them. But when bemoaning the amount of inequality that clearly cries out for more redistribution, we fail to note how much we're already doing.

So Oxfam are improperly accounting for wealth and they've also missed the point that, given the existence of possible negative wealth, then of course one person or another in the UK will have more wealth than the entire lowest swathe.

And then they manage one more error:

The IMF also made the case that redistribution efforts – including progressive taxation and spending on health and education – are pro-growth.

Well, no. The IMF made the case that excessive redistribution efforts reduce growth, while moderate ones seem to be pro-growth. The important words here being excessive and moderate. The study looked at the 60 or more countries that have good enough records to be able to check the thesis and they found that the top quarter of redistributors were doing the “excessive” kind. You'll not be all that surprised to find that these are mostly Western European states that do that social democracy thing. Yes, even us here in the UK.

Sweden is a hotbed of inequality

We measure inequality by the gini index (or ratio, and wealth ratios are always much more unequal than income ones) where 1.0 indicates that one person has all the income of the nation and 0 tells us there is perfect equality of income.

Can you say "pissing this up the wall?"

We can also measure the gini for market incomes or for incomes after all taxes and benefits. The difference between the two will clearly be the amount of redistribution that is going on.

Among the advanced industrial countries the market ginis are all from the high .30s to the high .40s. Yes, amazingly, the market distribution of incomes in, say, Sweden, is not all that different from that in the UK – and wealth inequality is higher in Sweden than here. The post redistribution ones range from the low .20s to the high .30s.

The actual IMF finding was that moving the gini more than around 13 points through this tax-and-spend redistribution is the excessive kind that harms growth. Meaning that the UK is over this limit while the US is still just under it. And Sweden's wildly over it, of course.

The reason I object to Oxfam doing this sort of stuff is not purely that I'm an ageing reactionary who insists they should get back to feeding the starving. It's also because they're really not very good at this sort of thing. I mean, seriously, when you've got an arch liberal like Jonathan Portes making fun of your pretensions to left-liberalness you really should be able to understand that you're failing somewhat. ®

Bootnote

Interestingly, seven hours after I pointed out to Oxfam that they seemed ignorant of this negative wealth point they're still assuring me that they're looking into it and will get back to me.