06 November 2006

Reality Re Income Inequality

Back to discussion of real political issues

Introduction – UK plc and Poverty

Poverty is a bad thing, but I perceive poverty in absolute not relative terms.

To me, taking people out of poverty doesn’t necessarily mean reducing the percentage of the population who live on less than some arbitrary percentage of the average. The traditional Left-wing view and current received wisdom suggests that unequal outcomes are caused by injustices in the society, such as variable educational standards, -isms and lack of work opportunities in certain areas. Labour’s solutions have been as follows –

1. Bolstering the welfare state to the extent that many working at or just above the National Minimum Wage are financially better off not working at all
2. Focused public spending/assistance in all areas of government massively tilted towards poorer or regeneration areas
3. Positive discrimination in public sector recruitment and beyond

Yet inequality between the richest and poorest has increased further under Labour’s tenure. Also, related to point one above, for all the talk of labour shortages, there are estimated to be 8 million economically inactive British adults of working age which is an unintended, but predictable consequence of these "anti-poverty" policies. It is time policy-makers faced a few home truths re trends in income. Firstly societal injustices are not the main driver for divergent outcomes.

What Really Affects Incomes In The Modern World

Look at any developed country and its economic development has involved an evolution from agriculture to industry to services. Chronologically, the economic value of IQ becomes ever more important. I fear that attempts to level economic outcomes such as those undertaken by Labour are destined to fail in this modern world because of the real and increasing economic premium attached to labour being able to handle concepts, manipulate ideas and master IT.
Not only is IQ becoming more crucial to economic success but observable phenomena such as assortative mating for IQ (that Western partners’ IQs are shown to be positively correlated) are likely to lead to an increasing spread of IQs within populations. Furthermore, placing an artificial cap on the economic success of high performers, whether through high taxes or discrimination is likely to reduce intellectual capacity within a society as a whole as these individuals are usually internationally mobile. I bet there are a disproportionate number of highly intelligent people in Monaco, Dubai and other countries where economic success is applauded and encouraged.

So What Next?

I don’t think GDP is the be-all and end-all, but it is difficult to sell the message that relative inequalities will inevitably rise. Unless my logic can be faulted, let’s work with the reality that relative inequality will continue to increase and attempts to prevent this trend are futile and damaging. From that position it is important to re-educate people on what to expect from the state to do for you (not as much). I would like to see a government place absolute poverty at the heart of social policy. No person should not have a roof over their head, lack the means to put food on the table or be unable to access basic healthcare, but that’s all folks.

Political leadership is required in this area. Unfortunately, I can’t think of any modern-day politicians who have the balls to articulate the above. Can you?


istanbultory said...

Today we live in a society where economic roles dominate other roles. Competence in today's workplace is determined by IQ, IQ is determined by inheritance and that since IQ is resistant to change, welfare programs that rely on changing or disregarding IQ are misguided and even counterproductive. Thus, GDP is positively correlated to average IQ.
See here for complex but useful academic paper:

Anonymous said...

Firstly, a very good 'post'. Very good indeed!

I'm not trying to be provacative or anything, but would you say that when it comes to eradicating poverty in the UK, the Government may have to be "cruel to be kind", in effect? Just wondering about your basic opinion.

Praguetory said...

First of all thanks for that IT. Sam, yes I am sort of saying what you suggest, but let's remove the negative connotations such as cruel. I would use the following analogy. The UK state is to the citizen as a liberal parent is to spoilt child. This gov'ts overarching need to mollycoddle and protect the citizen against realities has promoted a class of dependent citizens who consider the privileges bestowed on them as inalienable rights. Never faced with really difficult choices or problems there is no incentive for the citizens to be resourceful and they atrophy into indolence.

As with any form of protectionism, the fundamental problem is that it becomes a bigger drain on resources over time and the small difficulties or problems that the original policies were supposed to protect against pale beside the greater structural issues created by the policy. Unfortunately, this makes change all the more painful and usually only politically possible as a result of a crisis.

Encouragement for the voluntary sector to replace the state is a step in the right direction, but the overall project is not that easy. Anyway, I'll open it to the floor again. I don't pretend to have all the answers here.

CityUnslicker said...

The best and quickest way to reduce poverty is to reduce taxes. It is very simple. Reduce taxes encourages people to start business and em,ploy other people.

Employment goes up and so does the overall tax take.

This IQ issue is implausible and unsaleable politically. let's stick to what we know.

And to end on a high, G W Bush is a great advocate of removing peeople from poverty and has had some good successes.

Praguetory said...

Excellent points cityunslicker. What I am saying is politically unpalatable. I am the first to admit that.

Anonymous said...

"I fear that attempts to level economic outcomes such as those undertaken by Labour are destined to fail in this modern world because of the real and increasing economic premium attached to labour being able to handle concepts, manipulate ideas and master IT."

You make the mistake of presuming that Labour has a left-wing attitude towards poverty. It doesn't.

Labour actually scores pretty poorly in your hit list of left-wing crimes.

Mandelson let the cat out of the bag early on in New Labour when he told business people that he wanted to help make them 'filthy rich'. And that's essentially what they've done.

*redistribution* should mean from the top to the bottom, in left-wing terms. Blair's done the opposite.

newmania said...

Mr. P , I don’t want to get into your bad books but there are some aspects of this post I find slightly troubling and questionable .
Firstly , I think unless you admit that Social injustice or circumstances are a very large factor in “outcomes” , then you must draw some absurd conclusions. That the Welsh are vastly less deserving than the say the inhabitants of Surrey . That certain ethnic groups are so far les deserving ,as to be virtually a different species and so on.

Sadly I fear there are some who secretly believe exactly this, but it is clearly nonsense. Educational standards are part of it , so is money .. Redistributing money , which in various ways is often what is happening, has harmful effects. It has therefore been quite legitimate for Nu Lab to focus on Education . Naturally , being Nu Lab , this focus has lead to a sharp decline in standards and a wreck where an educational system used to be , but the theory is good .
I have always thought there was something shallow about the Conservative view of education. Unless the state intervenes at an early point to correct inequality of opportunity , then the subsequent meritocracy is morally and efficiently , undermined. You cannot be in favour of a freedom that is freedom for some to enter insulated affluence and for others to live in inescapable poverty. There has to be an active effort to provide opportunities for all . Discuss.
I agree with you on your points 1 , 2 and 3 on market distorting effects , if it is within the context , for me , of my point above . I am assuming you do not actually want bodies in the street and starvation , so a minimum state provision would be required .

I would put your conclusion a different way . I think Societal circumstances ( injustice is so loaded) , are a determining factor in the outcome of an individuals life . The individual is also in the equation and the more we can organise society so as to increase the latter the better .
My view would imply state intervention early , especially in education, and state laissez faire subsequently . I also admit that any state interference at all soon reaches a point where it becomes distorting . The state shoud not be expected, by gross legislation to do more than ameliorate, inequality of opportunity.

So far a difference of emphasis

Your eugenic theory of assortive mating ,I am fairly unconvinced by . The ethnic grouo with the highest IQ is the Eskimos .We are all interrelated much more than such a model would allow and an actual overall increase in IQ in a given group is unlikely .You would have to discuss cumulative differential reproduction , mutation, and so on . I doubt that either those in the Service Sector or those in Dubai are on their way to becoming a super breed. ( I do not recognise the picture of brilliant designers and stupid farmers at all ).
Neither you or I are scientists ( you probably are knowing my luck)but the history of Social Darwinism is political rather than scientific . Politically, and in terms of continued movement of achievers to areas of reward ,I would agree . The genetics , IMHO , are not necessary and have political implications that I would regard as unhelpful.
Think of the vast IQ divergence , for example , you might expect were one population isolated from areas of economic activity in , for example , Africa . There is no such observable divergence .

I hope this sounds like valid questions and not pontificating by the way . I certainly don1t mean to imply that I think I know everything , or indeed , anything , better than you do . Its just my thoughts as they occur .

Your conclusion , as you might expect , I agree with broadly . You don`t make explicit that a developed economy is interconnected .. There is little point in being a large brained ( ho ho) computer game designer , with noone to play and buy your games. You may therefore ,as a gifted individual have an interest in an absolute standard of opportunity and advancement for everyone ..

All I do is moan isn’t it . In the end I agree with your conclusion especially on the “Chimera of equality” and expectations of the state . Where I am, the damage done by the lack of such thinking is very clear indeed. I also think , he said daringly , there is a role for the state in guaranteeing opportunity .

None of this , I `m afraid would do me a lot of good . I am obviously the result of a long line of genetically disadvantaged peasants .

Thought provoking post . Which I enjoyed a lot