Some more thoughts on ‘inequality’

By May 29, 2019Other

Website essay 84:  29 May 2019

A few days ago I had a long and interesting discussion with a friend about inequality. He was exercised about the unfairness of some people’s being extremely rich and others being extremely poor. He thought that inequality was increasing. What could we do about it? He thought that the return of death duties and their equivalent would be a good start. We needed to level the playing-field, he said, so that each child was given an equivalent chance. It was his mission, and he wanted to draw me out on it. My response was not especially supportive, but I didn’t articulate it well. Since that talk I’ve thought more about it all, and what follows makes more sense, I think.

First, it’s hard to know whether or not economic inequality is increasing. Compared to when? My guess is that the 1960s and 1970s were a period in Australia when there was less inequality than now, and certainly less than in the 19thcentury, let alone in the time of Louis XIV, or the peak years of the Roman Empire for those who lived in those times. There is always economic inequality, for a variety of reasons. Part of it is inheritance: some kids get a much better start than others. Part of it is skill, beauty, cleverness, attitude: these attributes are not at all evenly distributed. Part of it is merit: all societies value people who have what it takes to achieve what is needed in an organisation — the military, government, the church, the school. Those people rise, and are better paid. I can’t really imagine a society that was functional in which everyone was paid the same, no matter their skill or merit. I don’t know of any example outside some primitive tribes, where ‘pay’ was not in question anyway.

Second, if we accept that there is too much inequality and we would like to reduce it, how would we best go about achieving that end? Two devices that have been used before are super taxes and death duties. At one point the Attlee Labour Government in postwar Britain brought in a 95 per cent super tax for those whose income/wealth exceeded a certain amount. This had a severe effect on grandees with great houses in the country, many of whom had to sell up. The super tax was not the only reason. Domestic staff, in the confident mood of the new Elizabethan Britain, went for much higher wages in the towns and cities, or emigrated to the USA, Canada and Australia. And not all of the rich were crippled. The Dukes of Westminster, probably then the richest family in the UK after the Royals, are still in that position, as far as I know. They used other anti-tax devices, like the trust, to bypass these swingeing new taxes.

Third, death duties strike at the heart of a family-based society. It is, after all, one of the great purposes of the family to ensure that the kids are given a good start, get a good education, manage to invest in a house or apartment, and so on. Passing on funds at the end of the parents’ life is one way we do this. Providing funds when needed, if the family can afford to do so, is another. Set your taxes too high, commandeer much of what is left at the end of the parents’ lives, and you take away much of the incentive and capacity of the family to care for its own. Is that what you really want?

Fourth, that strategy also assumes that governments are in a better position to decide what families need than the families themselves. On what basis would we think that is either sensible or practicable?

Fifth, it is unquestionably the case that as societies get wealthier so the degree of economic inequality will seem to rise. The numbers just grow. Today we talk about billions; when I was young, ‘millions’ was a difficult thought to entertain. Some people are offended at the size of the annual salaries and farewell gifts appropriated by the CEOs of banks. It doesn’t thrill me much either, but this matter is in the hands of the banks’ shareholders. If they pay less to their CEOs more money should flow to them in dividends. 

But what about the wealth of top sportspeople, who do to a large degree earn their incomes? My favourite tennis player, Roger Federer, has a net worth of $US450 million. That’s peanuts. Vince McMahon, a wrestler, is worth $US2.2 billion. Ion Tiriac, once highly regarded both as a tennis player and an ice-hockey player, is worth two billion. Michael Jordan’s skill in basketball has provided him with $US1.7 billion. Tiger Woods has about $US800 million. As the world becomes more global, the earnings of such athletes become global too. What can any government do about such wealth, if it wanted to do something? The global issue will be that all countries would have to do the same thing at the same time, otherwise there would be an incentive for each country to play this game so that it benefits disproportionately, no matter what other countries do. It is all somewhat reminiscent of those vain attempts to ‘take action against climate change’, where some Australians think we have to show the way, when China and India pay no attention to the core issue at all, and their emissions dwarf ours.

Sixth, as so often, my approach would be incremental only. Don’t bring death duties back, don’t have a super tax. You’ll only infuriate the electorate, and to what end? Is there a way of giving more children, who don’t have great advantages, a better step forward? Well, we do a lot of that now. The education, health and social welfare sectors in Australia already offer great examples of help where it is needed. We aren’t bad at it at all. You want more done? Then you’ll either have to take money from other sectors, raise taxes or find ways of encouraging the voluntary sector to do more. None of that is easy, but it’s likely to be more effective in the long run than the big, bold visionary top-down decision so well exemplified by Kevin Rudd’s NBN and NDIS visions, still not implemented properly. That is not the way to go. 

Finally, I’m not sure that economic inequality is such a special issue. Yes, to repeat, there are kids and families ‘doing it tough’, lots of ‘little Aussie battlers’ who never seem to be able to buy a house, or get the things they and their kids need. There will always be some of them. But in general, Australia is a lot wealthier than it was, and the poor are a lot wealthier than their counterparts were fifty years ago. If you think that isn’t good enough you might like to join a voluntary organisation that does something to help the less advantaged. Houses are too expensive? Well, for hundreds of years most people have been renters. One current argument is that renting makes more sense financially.

And you’ll hear a lot about the ‘poverty line’. You are rarely told what it is. First, it is a measure that proclaims that if your income is below fifty per cent of the median Australian income, you are living in ‘poverty’. Last year, according to the Australian Council of Social Services, that applied to about three million people, and equated to a weekly income of $433 for a single person, or $909 for a couple with two children. There are other sources that say real poverty in Australia is twice as bad.

Which takes us into another domain. What is poverty, anyway? How does one define it? This essay is already long enough, so what amounts to ‘poverty’ will have to wait for another week. On re-reading I might come across as an old bad-tempered curmudgeon who likes things just as they are. On the contrary, I think, my aim is for incremental change that works and does give people who have disabilities a greater opportunity to lead fuller lives than would otherwise be possible. But a society of equals doesn’t appeal to me at all. I’m happy with diversity in outcomes as well as in other aspects of life.

Join the discussion 18 Comments

  • I have not read the full article but this topic is propaganda. This is what is happening out here in the real world. The minimum wage is increasing in times of recession this increase in not passed on. Recession being from 01/01/2013 to 01/01/2018. The lower skilled jobs are getting wage rises while those not covered by awards wages are stagnating , that is no wages rises for the past umpteen years. Why not – recession and outsourcing of tasks to SE Asia, India etc. For example you can have a full mouth of teeth cosmetically re done in SE Asia, including flights, accomodation, meals, x rays for a third to quarter of the price of the proceedure in Australia – eg Aust price $20k SE Asia price $7k. Accountants, lawyers, engineers, computer programmers, web site designers, teachers, knowledge workers and service providers are sending this work over seas.
    Across all industries it is the employees who are earning more than the business owner who puts in 12 hour days, does all the jobs that no one else wants to do, and has the stress of keeping the boat afloat.

    The real winners are govt employees and they are the tool for civil war in Australia. Govt jobs, especially state govt jobs are the highest paid, are indexed each yr, are paid super at 14.5%, do not pay excess super contributions tax nor pay the additional tax on their super if they earn more than $200k.

    The conditions are unbeleivable that private industry cannot compete.

    Govt jobs have become the prized job rather than the least attractive job.

    Further, the rsie of charities and not for profits is immense. These organisations receive govt grants, pay not tax and the the salaries are in excess of private industry. You can stand on a corner and ask of money and get paid more than if your are a skilled such as a bricklayer, concreter, programmer.

    What makes this worse is that inequality has come from government action. Energy prices have gone through the roof, people have paid for solar panels whose benefits are questionable, people are buying diesel generators for back up, council rates are going up, there are masses of regulations which we have to pay for licences and registrations which there were not there before, we all need a police clearance, school fees are going up due to people exiting the public system, and the increase in taxes – state and federal.

    Just look at the NBN – 5 G is about to be rolled out by private industry, have a look at the NDIS.

    Then there is the increase in anxiety due to global warming and mental illness. These tricks are straight out of the Soviet Union.

    I had a teacher who takes students to orphanges in Vietnam, they ask him what is depression ,what is anxiety what is peanut allergy.

    This inequality is a myth that is perpetuated by frightened people to afraid to leave the comfort of mum and dads home and work.

  • Chris Warren says:

    Don

    “First, it’s hard to know whether or not economic inequality is increasing.”

    This is a useful starting point, and the data is clear.

    The share of GDP going to labour is falling and the share of GDP going to capital is increasing. Full-time jobs are being replaced with part-time jobs.

    Both increase inequality and such inequality can be locked-in if (as in the UK) “They (the rich) use anti-tax devices, like the trust, to bypass swingeing new taxes”.

    50 years ago, workers had far more job opportunity. You could leave school at 15 and find secure employment as; retail workers, service station attendants, platform assistants on railways, labourers of all types, seafarers, telephonists, bank tellers, huge range of manufacturing jobs, clerical assistants, and etc.

    50 years ago there was not the density of beggars in the streets, rough sleepers or (stressed) food banks we see today.

    The Henderson Poverty inquiry resolved the question “what is poverty”.

    As I understand, the aged-pension is stuck at 25% male average weekly earnings – a historical benchmark, but imposts on household budgets have increased. Purchases by age-pensioners are not GST free.

    Telstra is about to destroy 6,000 jobs without a wimper it would seem.

  • spangled drongo says:

    Is greater equality having more poor and less rich, less poor and more rich, mostly rich, mostly poor, equal numbers of both, or just everyone living under a socialist system and believing they are all equal?

    When I was young we were all poor but in many comparisons with today’s world we were very well off.

    We went to school barefoot and when we went to the beach in the school hols we camped on a Gold Coast beach under a sail tied to the old Plymouth.

    We later built a beach house there for under a hundred quid which would be worth 10 million today.

    Schoolkids my age were quite handy at nailing fibro sheets to ironbark studs to build a house.

    Life was hard but problems were solvable.

    Today, kids are not taught to work and we have to import labourers to do even the easy jobs like picking fruit.

    Impossible to compare with today’s world except to say that once you have more than sufficient money it doesn’t change much.

    • John Nation says:

      A Parliamentary Library study states: “Currently, most pensions are indexed twice each year (on 20 March and 20 September) by the greater of the movement in the CPI or the Pensioner and Beneficiary Living Cost Index (PBLCI). They are then ‘benchmarked’ against a percentage of Male Total Average Weekly Earnings (MTAWE). The combined couple rate is benchmarked to 41.76 per cent of MTAWE; the single rate of pension is set at 66.33 per cent of the combined couple rate (which is equal to around 27.7 per cent of MTAWE). ‘Benchmarked’ means that after it has been indexed, the combined couple rate is checked to see whether it is equal to or higher than 41.76 per cent of MTAWE. If the rate is lower than this percentage, the rates are increased to the appropriate benchmark level. ”

      In other words, if the cost of living indices rise faster than MTAWE, the pension can rise faster than MTAWE. If not, it must be at least 41.76 % of MTAWE which translates to to around 27.7% for the single pension.

      My recollection is that when the Howard Government introduced the MTAWE link an OECD report at the time indicated that this might be unsustainable. Our age pension is non-contributory and unfunded, unlike many other schemes around the world which require contributions. Migrants qualify for this after 10 years residence in Australia, hence the cap on parent visa numbers and the need to give incentives for people to accumulate their own savings and reduce the reliance on the age pension.

  • JMO says:

    If we could waive a magic wand to even everyone’s wealth to (say A$5 million) within weeks we would have beggars in the streets, again. Inequality – it is the human condition.

    • Chris Warren says:

      JMO

      There may be two types of inequality – 1) natural based on different productivities, and 2) the inequality introduced by monopoly rents and oppressed working conditions offshore.

      • JMO says:

        This supports as i said – all part and parcel of the human condition. As the French existentialist philosopher Jean Paul Sartre said: “L’ enfer, c’est les autres” (Hell, it’s the others), so inequality is due to personal and others’ decisions and actions, ie the overhaul human condition.
        As long as Homo Sapiens are on this planet inequality will always be here and, for some hell as well.

  • Hasbeen says:

    I get so sick of this carping about inequality, apart from the infirm we mostly get what we earn.

    I was lucky, dad came back from the war. After a few years getting back on their feet, my folks wanted to build a house. This was hard, as getting even nails could have a few months wait at times.

    We lived in a dirt floor single skin tin shed, on the outskirts of Bathurst. It got cold. However it was nothing special, another 35 or more families were doing the same in our road alone. Half the kids in my school football team played barefoot in the sleet at times, but so did the kids in the other teams. My parents may have been able to afford boots, but you couldn’t get them anyway.

    We had great teachers offering us every chance. If you were good enough, & worked hard enough you could earn a teachers or company scholarship to uni. I got one to do engineering. Others after less effort got teachers college scholarships. If you didn’t want to work that hard, there were plenty of apprenticeships, & an intermediate education was still good enough to become an electrician for example, not so today.

    I could be very well off today, if I had chosen, but I went motor racing instead, when there was no money in it, & spent most of my income for 6 years. Was it worth it, you bet.

    When I decided I was not quite world champion material I retired, & after some serious work, bought a yacht & spent 6 years sailing around the Pacific islands. It was easier to earn a living out there, but I was not going to get rich.

    Back in Oz at 37, with a tired old yacht & not much else, I joined the rat race. Lady, kids, houses, normal work environment, just like I was supposed to do back in the 60s.

    Today I am probably worth a million, with 19 acres fresh water river frontage, & a big 6 bedroom, [but far from palatial] home, a couple of ponies for the grand kids, & an old sports car for me.

    Anyone could have done this, I am nothing special. I work hard when necessary, & enjoy learning new skills, but I had to work very hard to take advantage of the great education available to all. That is about the only difference I believe. We had better teachers than today, even out in the bush. Our teachers ran Honours classes for an hour or more after school every day. Drop a bomb on most schools at 4.00PM today, & you are only likely to hurt cleaners. Many of our schools have no one capable of running a physics honours class anyway. My kids had to go to coaching classes on Saturday at QUT to get something as good as I got at school.

    It doesn’t matter if some have billions, provided a comfortable life is available to those who aspire to & will work for it. I could have had a few million if I’d wanted that, but I prefer my memories, besides as someone said, it is not much use being the richest bloke in the cemetery.

    • Chris Warren says:

      Hasbeen

      Wouldn’t it be great if everyone could live in the past.

      How do workers today get 19 acres of fresh water frontage?

      Where are there teachers and engineering scholarships?

      why didn’t you pay for your tertiary education like everyone else has to today?

      But it is good that poor people today don’t have to play barefoot in the sleet, isn’t it.

      They must be very grateful.

  • Aert Driessen says:

    The best way to address inequality is to make sure public schools are cost-free and that the standard of teaching is adequate for a productive life after school. Unfortunately the latter seems to be lacking, but not in all public schools. Public education needs reform.

  • Bryan Roberts says:

    Bring in more people, and of course inequality will increase. It’s not rocket science, but it appears to be a concept foreign to politicians and the commentariat.

  • Hasbeen says:

    There is a problem with schools today. It has become not cool among many males to be good at English Math & Science. It is still OK to be good at tech subjects, wood work & welding for example, but academics not so.

    My son was falling for this rubbish, until I suggested it simply cost the teachers less effort. It was up to him to grab high school by the throat, & shake out of it everything it could give him, whether it wanted to or not.

    This appealed to the mild antiestablishment attitude he was developing. He did enough, but no where as well as he could have. Teachers need to develop a strategy to overcome this.

    Chris Warren have you forgotten that today university is free, until the student earns enough to trigger paying for just 1/4 of it. In this area we have a number of wives who make sure they never reach that threshold.

    • Chris Warren says:

      Hasbeen

      How do you get 1/4? Is this 1/4 lecturer+tutor+services or what?

      Most people in the workforce with higher education quals. expect to earn more than the HECS threshold reasonably quickly.

      The threshold (56k) is a long way below average earnings (86k) closer to minimum rates (39k).

      You can only avoid HECS repayment if you work part-time or deliberately find low paid work for the rest of your life.

  • Chris Warren says:

    Don

    We have good data going back to 1880, here: https://climate.nasa.gov/system/charts/12_seaLevel_left.gif [CSIRO]

    and for satellites going back to, 1993 – 25 years.

    Both data sets show sea level rise that looks like continuing for similar timescales into the future. They also show no influence due to variation of solar insolation (11 year sunspot cycle).

    Sea level change of thousands of years can be explained by ice age cycles, but not so the current rates over decades.

    So the only hypothesis has to be based on GHGs. I cannot think of any alternative?

    • Ross Handsaker says:

      The “ greenhouse gases” are radiative gases, ie strong emitters of energy and cannot add any additional energy to the system. Unlike radiation which emits energy in all directions, convection, conduction and heat flow in one direction only and only if there is a temperature difference ie from hot to cold.
      Unless there is a temporary temperature inversion in the atmosphere, the atmosphere is cooler than the surface.
      The “ greenhouse gases” cool daytime surface temperatures (energy from the sun is reflected by clouds while radiative gases and clouds absorb further insolation) and keep nights warmer (mainly clouds and latent heat in water vapour) by slowing the loss of energy from the surface.
      It is difficult to see how these gases are able to warm the oceans as you seem to suggest.

      • Chris Warren says:

        Ross

        Radiative gases have little absorption of insolation as the Sun’s radiation wavelengths are too short.

        The oceans and land warm as a result from “back radiation” from new heat trapped in the atmosphere.

        Heat can radiate from hot to cold as, for example, holding a cold ice cube in front of a hot radiator.

        • Ross Handsaker says:

          Chris, nearly 50% of the Sun’s insolation is in infrared longwave energy. However, most of the atmospheric absorption of the Sun’s energy occurs in the stratosphere from ozone.

          The bottom line is whether there is a radiative “greenhouse” effect. The stated 33C of warming caused by the “greenhouse” effect must apply equally to day and night temperatures (the gases don’t stop absorbing energy from the surface just because the Sun is shining). Consider the hottest places on Earth, ie the hot dry deserts. There is very little water vapour (humidity) in the atmosphere above the hot deserts, yet these areas record the highest day temperatures (plus 50C). Conversely, Singapore, which is surroundered by very warm ocean temperatures, is calm, but has huge amounts of water vapour in it’s atmosphere, has a top temperature of only 37C. The presence of water vapour in the atmosphere is evidence that the surface has cooled (latent heat transfer), not warmed. Fourier observed in the early 1800’s that these gases would need to be solid to have a warming effect on surface temperatures.

          A classic example of the ineffectiveness of water vapour to cause warming of temperatures is a comparison of average monthly temperatures at Phoenix and Atlanta, USA. Both these cities are on the same latitude and at almost the same altitude (Phoenix is slightly higher). Phoenix climate is described as dry desert and Atlanta as humid, sub-tropical. Both day and night temperatures at Phoenix are higher than at Atlanta for every month of the year!

          You seem to be conflating energy with heat. If the intensity of the back radiation is less than the intensity of the infrared radiation leaving the surface, which is usually the case , it cannot make the surface warmer. (Conservation of energy – energy lost by the warmer object is gained by the cooler object). Heat flows only where there is a temperature gradient, and only from warm to cool. An increase in energy does not necessarily cause an increase in temperature. For example, place a huge item at 10C in a fully insulated sealed room which has a temperature of 20C. While there has been an overall increase in energy within the room, it’s equilibrium temperature will be below 20C.

          Keep in mind that the atmosphere is porous to radiation. If it was not, the Earth would not warm or cool. If “greenhouse” gases trapped heat they would remain warmer than any surrounding gas molecules, which is unphysical.

          The day temperatures in hot, dry deserts should be enough to cast serious doubts on a radiative “greenhouse” effect, which appears to create additional energy out of nothing.

          • Chris Warren says:

            Ross

            The Sun’s radiation is mostly absorbed by water, with ozone, oxygen, and CO2 also contributing. Increased warming triggered by CO2 injects more water vapour into the atmosphere.

            https://archive.fo/43Wgw

            The issue is not whether Sun’s radiation is absorbed, but rather the changes in that absorption.

            70-75% of sun’s radiation is transmitted, but only 15-30% gets back out.

            See: https://archive.fo/juW9v

            If any heat-flow system is in balance, and you add in extra heat – the entire system warms. Back radiation will increase as well, so there has to be an associated rise elsewhere.

            The sun is pouring in extra heat as a flow, and it accumulates the back radiation effect little bit by little bit in response to changes in CO2, water vapour, and other GHGs.

            While your example:

            “place a huge item at 10C in a fully insulated sealed room which has a temperature of 20C. While there has been an overall increase in energy within the room, it’s equilibrium temperature will be below 20C.”

            is correct as a static example, it is not correct if you continuously increase the heat in the same room from outside (a flow).

            While latent heat of vapourisation cools a liquid, this is a relative effect. A saucer of water left out in the sunshine will still heat up although it will heat up less than the same saucer full of dry dirt.

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