The financial crisis saw the UK become more equal. That was nothing to celebrate
THE RICH keep getting richer”. If you’ve been watching Channel 4 over recent weeks, you will likely have been subjected to unsubstantiated claims such as this. Viewers of last week’s “How Rich Are You?” programme probably came away with the conclusion that the gap between rich and poor was ever-widening.
Before making a show littered with such claims, you’d think the producers would bother to check whether it is, in fact, true that inequality is ever-rising. And here’s the problem. Looking at official data, you find that, on almost every conventional measure, inequality has actually fallen since the financial crisis.
The UK statistics are clear. Between 2007-08 and 2012-13, the Gini coefficient – the most well-known measure of inequality for households – fell from 34.2 to 33.2. The share of total income attributed to the top 10 per cent of earners fell between 2007-08 and 2014-15, from 36 per cent to 34.5 per cent; for the top 1 per cent from 13.4 per cent to 12.6 per cent; and for the top 0.01 per cent from 5.2 per cent to 5 per cent. Thomas Piketty’s alternative dataset, which makes adjustments for under-reporting of top incomes, finds even more significant falls in the income shares of the top 10 per cent, 1 per cent and 0.1 per cent between 2007 and 2011.
Even examining wealth, ONS data show that the overall wealth shares of the wealthiest 10 per cent and 1 per cent remained flat between 2007 and 2011. It’s only when you get to the top 0.1 per cent that you find that the share of wealth has increased. This is most likely to do with inflated asset prices, including in housing – a consequence of both government policies (planning constraints) and the actions of central banks through QE.
Why then have we not seen the egalitarians rejoicing about how much “fairer” a country we have become since 2007-08? Any sane person can see that inequality fell over this period because we all got poorer following the recession, but with the richest suffering disproportionately from a higher base. Clearly this is nothing to celebrate.
Yet this period highlights well the absurdity of the position that many egalitarians articulate. They could debate what drives inequality of income and wealth – splitting up what has caused current levels of inequality into “good” causes (globalisation and innovation which enriches us all, but which may also lead to the rich doing especially well, along with the world’s very poorest, it should be said) and “bad” causes (cronyism, lousy education systems, land use planning laws, family structures).
But instead egalitarians, such as The Spirit Level authors Richard Wilkinson and Kate Pickett, claim inequality in and of itself is the cause of a range of social ills – from worse health outcomes, to more violence, to more illiteracy. In fact, they admit they would be willing to trade economic growth for a more equal society, claiming this would lead to better social outcomes.
One might crudely say that the period after the financial crisis – with a stagnant economy and more equality – was a dry run for their agenda. For most people, this wasn’t a particularly happy time. Indeed, the idea that this greater equality will lead to improvements in the range of social outcomes outlined seems fanciful. Yet these are the sorts of contortions you get yourself into by placing more importance on the gap between rich and poor than improvements in living standards for all. It takes a weird moral outlook to desire an economy in which the poor are poorer, provided the rich are even less rich.