Torstein Bell tries to tell us about some research into wealth inequality. A slight problem with the research he’s looking at being that he doesn’t understand the wealth inequality he’s trying to talk about:
As the paper puts it: “Even in egalitarian Sweden, wealth begets wealth.” In less egalitarian Britain, this should equally alarm socialists on the left and meritocrats on the right.
Well, no, not really. For one of the known – but known to all too few people apparently – points about comparing Britain and Sweden is that the latter is more equal concerning incomes, the former more equal concerning wealth.
We measure inequality – the usual perhaps rough and ready measure – using the Gini. For incomes in Sweden this is perhaps 0.29. For incomes in the UK 0.35. This is after the influence of the tax and benefits system and before the effects of state supplied services like education, health care and so on.
The wealth Gini for Sweden is 0.867 and for the UK 0.746. When we consider wealth Sweden is not more egalitarian than the UK, it is less so.
Over the years I’ve reminded Polly Toynbee of this a number of times. Never had a convincing response on the matter from her.
There is another and more basic error here too. The rise of wealth as compared to GDP. This is something that Thomas Piketty has famously worried about and it is, to be fair about it, a silly thing to worry about:
Wealth matters in 21st-century Britain, in part because there’s lots of it around. British household wealth was three times GDP in the 1970s. It’s seven times today. Falling interest rates are the main cause, pushing up prices of existing assets.
No, not really, For much of the 1970s real interest rates were negative, they’re positive today. That’s not a fall in interest rates. Rather more importantly though lifespans have increased significantly since the 1970s.
In those 1970s the average male could look forward to four or five years of retirement. Note that’s from birth, not from retirement age, if you made it to 65 then expected lifespan was longer than that. OK, now the expectation is for 15 years or so post-retirement. This is why the government keeps pushing up the state pension age.
What’s a rational response to this? Saving more into our pensions of course. What has been a long running government policy? Trying to get us all to save more into our pensions. What is by far the largest portion of household wealth? Pensions savings.
Actually, private pension wealth is some 3 times GDP at present. That, plus this from the ONS, rather explains it:
Recent increases in aggregate pension wealth reflect a number of factors, including an increased number of people with pension wealth and demographic changes associated with an ageing population.
We’re living longer so we’re saving more to cover our Golden Years. This is the very terror that obviates the current economic structure, isn’t it? Well, Thomas Piketty thinks so so obviously it is, yes.