IEA Blog

If you haven’t read a book that made you laugh out loud on the bus or the Tube in a while, try Christopher Snowdon’s superb release, The Spirit Level Delusion (SLD).

But the book’s subtle humour is not the reason I am recommending it. The SLD is, above all, a book that delivers and goes well beyond the promise of its subtitle – “fact-checking the left’s new theory of everything”.    

It starts by exposing the empirical flaws in Richard Wilkinson and Kate Pickett’s The Spirit Level (SL), which claims that just about every social problem is caused by income inequality. Using where possible the same data sources as the authors, Snowdon shows that the results have been influenced by the choice of countries and indicators. Including just a handful of additional countries is enough to make many of the SL graphs, which show data points scattering around a straight line, dissolve into shapeless point clouds. Approximating the same abstract concept with a different proxy measure does either the same, or even reverses the correlation shown in the SL. And where this is not the case, an alternative explanation for the observed pattern is usually not too difficult to find.

Snowdon does not, of course, conclude that inequality “causes” positive social outcomes, or that the English-speaking countries perform per se better than Scandinavia. The SLD is not the inverse of the SL. Its message is merely that if you were searching for the philosopher’s stone, keep searching. The SL does not contain it.

The first three-quarters of the SL, while ultimately unconvincing, at least make an interesting and engaging read. Towards the last quarter, the SL degenerates into a conventional anti-consumerist rant. In this part, the authors repeat the same old story that the government should curtail our wealth and force us to live more simple lives, so that we can discover the things that “truly” matter. It is therefore appropriate that towards the last third of the SLD, Snowdon broadens his attack well beyond the SL itself. He critically examines a range of popular anti-consumerist literature and exposes it for the badly concealed, authoritarian elitism that it is.

When all is said and done, the SL is a variant of this strand of literature. It envisions a social system in which wise rulers prevent us from developing aspirations by insulating us from the sight of wealth and success, and thus protect us from the dangers of disappointment, failure, stress and anxiety. If a metaphor was to be chosen for this type of social system, it would be a giant playpen.

And this is precisely the reason why Snowdon’s full-scale attack is relevant. Some have argued that the SL was just a temporary intellectual fad which will be forgotten in a few years. But the wider idea that a happier society could be created by restricting people’s lifestyle choices and material possessions has come to fascinate many intellectuals, and it has been around well before the SL. The parallels with the ascent of socialism, described by Hayek in The Intellectuals and Socialism, are eerie. It may well be that the next big battle for a free society will be fought against the new anti-wealth egalitarianism. Christopher Snowdon has provided defenders of freedom with powerful ammunition.

From the moment Frank Field raised doubts about the validity of relative poverty measures, the outrage industry has been up in arms against him.

The poverty enquiry which Field will conduct for the coalition has not even begun yet, but according to Donny Dorling of Sheffield University, Field’s venture shows that David Cameron “clearly does not want a redistribution of the money, the land, the work, the educational resources and the ‘opportunities’ that the rich have expropriated from the poor over the past three decades.”

I have written a number of posts criticising the concept of “relative poverty”. Let me, however, make a conditional defence of it. It is sometimes claimed that researchers focusing on this measure “confuse” inequality with poverty. They don’t. They subscribe to a specific set of highly restrictive assumptions, under which income inequality means social exclusion, and social exclusion means poverty. So under their assumptions, inequality is poverty, and there is nothing counterintuitive about the finding that Luxembourg has a higher poverty rate than Hungary, Slovakia, Slovenia and the Czech Republic.

The problem with relative rates is that when they are quoted outside of research circles, they are seldom, if ever, presented in this way – as a figure which makes sense under very specific assumptions, which you can accept or reject. What you usually get is a conflation of the rate produced by one poverty indicator with the interpretation belonging to a different one. Witness Dorling:

“…European Union researchers announced that 23% of children in the UK lived in a household in poverty, and that the UK ranked seventh worst out of 27 EU countries by the measure Field would like to abolish. Only in poorer countries, such as Romania and Bulgaria, are a higher proportion of children living in poverty.”

The latter sentence insinuates that the poverty rate should be inversely related to a country’s overall level of prosperity. This would be a perfectly valid claim for an indicator of material deprivation, but not for relative poverty, which has nothing to do with overall prosperity.

Dorling is not an exception. End Child Poverty informs us that “4 million children – one in three – are currently living in poverty in the UK [...]. This is a shocking figure given the wealth of our nation.” The UK branch of Oxfam claims that “The UK is the fifth richest country in the world. [...] Yet this has not benefited the poorest in society.”

This jumbling of poverty figures and interpretations is unfortunate, because child poverty does exist in the UK. But we would be better served with a contest in producing the most sensible policy recommendations, instead of a contest in producing the most catastrophic figures.

Yesterday I appeared on the Radio 4 Sunday Programme. The programme is available online on the BBC iplayer at http://www.bbc.co.uk/programmes/b006qnbd until 2 January. It begins with a discussion of the work of Charles Booth and William Booth. The debate with Philip Booth comes about 36 minutes in.

Part of the programme looks at a book by Wilkinson and Pickett called The Spirit Level which suggests that more unequal countries lead to much worse outcomes for everybody. Wilkinson himself said on the programme that it would be better to tax the rich and throw the money away because the resulting increase in equality would be good for society. In my view, policies based on institutionalising envy should have no place in a civilised society. But, notwithstanding this, his premise about taxing the rich is based on the results of a great deal of statistical modelling about inequality which raise many questions.

I must confess that I have not read the book – I would genuinely welcome comments from those who have read it, or indeed from the authors. I have read some detailed summaries and reviews and the following points come immediately to mind.

- There is much made of the relationship between inequality and infant mortality – in particular the high rates in the US and the very low rates in the “equal” societies of Japan and Sweden. However, when I looked into this, I discovered that, in the US, every baby who is delivered and dies counts in the statistics, no matter how premature or how small. In Japan, deaths within 24 hours of birth are recorded as miscarriages; in Sweden, deaths under a certain birth weight are not recorded in infant mortality statistics. Apparently this, together with the higher number of migrants in the US (see below), explains the differences in recorded infant mortality.

- The authors make much of the relationship between crimes of violence and inequality – again the US being the outstanding example. However, we would expect crimes against property to be associated more with inequality and these are 2.5 times higher in Europe than in the US…Why are the authors so quiet about this?

- When problems are positively associated with equality (such as suicides) these are regarded as anomalies (to the authors’ credit they are not brushed under the carpet, they do try to explain this).

All in all, the message seems to be that homogeneous and closed societies that are not very receptive or attractive to migrants score well on equality. Large heterogeneous, dynamic economies that are attractive to migrants score badly. Migration, of course, helps cause inequality – as migrants are often moving to avoid poverty and they start poor, but this leads to some important questions. Why are migrants attracted to countries that are so unequal if all other quality of life indicators are worse in such countries as well? Why are migrants not clambering to get into Japan and Sweden? And why, in many respects, is Japan, if it scores so well on equality and so many other lifestyle measures, burdened with a huge debt and a catastrophically low birth rate that seems to reflect a huge degree of pessimism?

“Revealed preference” seems to suggest a desire to live in the US and the UK rather than in Japan, whatever the statisticians might think is rational.

Conventional wisdom has it that inequality between the rich and the poor has grown substantially in recent years, and that this is a trend which should concern all right-thinking people. A timely new report by Will Wilkinson of the Cato Institute, aptly called Thinking Clearly About Economic Inequality, questions both of these assumptions.

Although incomes appear to have become more unequal in the past decades, this is not what should matter – what does matter is inequality in consumption. If we are interested in someone’s overall well-being, we should be concerned more with the quantity and quality of the bundle of goods and services that they are able to consume rather than their bare income.

Wilkinson cites much recent literature on the topic showing that once consumption is taken into account the purported rise in inequality disappears, or is even reversed altogether. Ironically, it seems as though the forces which are often blamed for the rise in inequality – the globalisation and “Walmartisation” of the economy – actually play a crucial role in ameliorating it, for the simple reason that they serve to disproportionately lower the prices of goods like food and clothing which make up a larger proportion of the budgets of the poor compared with other income groups.

Why should we care about inequality at all? Wilkinson firmly rejects the point of view that “inequality” is a synonym for “injustice”, on broadly Hayekian grounds; the “distribution of income” is not really a distribution in the sense of something which is centrally distributed, but is instead the result of the voluntary choices of individuals taking place within the context of a vast network of exchange. He points out, quite rightly, that it is simply not enough to show that inequality is rising and conclude from it that some social problem exists – “an additional argument is required to show that there is some kind of wrongdoing or injustice involved.”

Perhaps most interesting is the section rebutting what Wilkinson calls the “Inequality Road to Serfdom” argument. The contours of the argument, so named because it is the contemporary leftist’s version of The Road to Serfdom, are familiar: economic inequalities, if allowed to run rampant, will inevitably lead to political inequalities, the death of democracy, and the entrenched tyranny of the rich; or so the argument goes, at any rate. But does it stand up? Beside the fact that this seems to be a better argument for limiting the scope of political power than for reducing economic inequality, Wilkinson points out that it doesn’t even hold up empirically – as the popularity of Obama among high income Americans, despite his promises to “spread the wealth”, shows.

The report lives up to its name, and is highly recommended for anyone who wants to think clearly about economic inequality.

I turned on the Today Programme yesterday morning and my heart sank: the main story was about how “too many” children from wealthy families were going into the professions and that the relatively poor were being disadvantaged. A committee of the great and the good – many of whom were privately educated – chaired by Alan Milburn has found that children from lower income households are less likely to get into law, accountancy and medicine than a generation ago. The remedy, we are told, is more government intervention to even out the life chances of the poor and the wealthy.

What is so sad about this is that the sort of background identified by this committee – low income households with no experience of higher education – exactly mirrors that of my wife and me. Yet we both went to an excellent school and on to university. The reason for this was, despite living in council housing, we both were able to take and pass the 11 plus and go to a grammar school. Like thousands of working class children we were offered a massive opportunity to better ourselves.

This is denied to today’s children, whose education has been determined by the bureaucratic administration of school places and the ability of their parents to afford a house in the catchment area of a good school. Not surprisingly, therefore, those children with wealthier parents have a head start.

Social mobility was better in the 1960s and 1970s not because of any drive for equality, but precisely because of the opposite. The system actively discriminated between individuals, based on their personal qualities and did so with complete disregard for the background and income of parents. But this simple insight seemingly has been missed by the great and the good who instead wish to penalise schools and universities for pursuing excellence, and in doing so, blight the chances of another generation of bright working class children.