Another angle on inequality

March 9, 2014

Most discussions on inequality focus on income, and pre-tax income at that.

There is another angle on the topic:

. . . If you measure consumption inequality, it is far lower than pre-tax income inequality, because the top 40 per cent of earners pay more in than they get out, while the bottom 60 per cent get more out than they pay in. Indeed, in Britain the top 1 per cent generate about 30 per cent of the total income-tax haul. After such redistribution, the richest fifth of the population has only four times as much money to play with as the poorest fifth. . . .

This comes from a post by Matt Ridley who points out that poverty and inequality are both falling.

. . .  by any conceivable measure, absolute poverty has fallen dramatically over the past few decades, so why should it matter if the rich get richer? Today’s British poor spend half as much of their income on food and clothing as in the 1950s, while working many fewer hours, living about eight years longer and having access to phones, cars, medicines and budget airlines that would have amazed even the rich in the 1950s.

Moreover, here’s a question I’m willing to bet that chimpanzees would do better than people at: given that inequality has been rising recently in China, India, America and many other countries, is global inequality rising or falling?

The answer: it’s falling and has been for several decades, however you measure it. The reason is that people in poor countries are getting richer more quickly than people in rich countries are getting better off.

That fall in global inequality has accelerated since the start of the financial crisis. As Africa now experiences record rates of growth, the number of people trying to live on $1.25 a day is plummeting fast. Mr Rosling likes to show two charts in his talks: the graph of global income was once a two-humped camel; now it’s a one-humped dromedary, with the vast majority of the world’s people in the middle.

Here’s another question that I fancy the chimps would beat the people at: did poverty and inequality in Britain increase or decrease as a result of the recession? The answer is that both fell. Inequality has fallen to levels not seen since the mid 1990s, as it usually does during recessions, though it is still higher than it was in the 1970s. Meanwhile the Left’s favourite measure of poverty — those earning less than 60 per cent of the median income — has by definition gone down, because median income has gone down. Redefining poverty in this relative (and very inadequate) way has therefore rather backfired. . .

A percentage of median income is a very blunt instrument with which to measure poverty because a fall in the incomes of higher earners will improve the measure but make absolutely no impact on the problem.

As poverty and inequality improve the differences between rich and poor become less obvious:

Imagine being told that one of the people in a meeting is a genuine billionaire (I owe this idea to Professor Don Boudreaux). How would you tell which one? His bodyguards, private jets and grouse moors are outside the room; his shirt and jeans are unlikely to give him away (as they would in 1900); his Rolex could be a cheap imitation; his teeth, girth and height are probably unremarkable (unlike in 1800); even his Diet Coke is the same as everybody else’s. Much more than in the past, most inequality in this country these days — though by no means all — is in luxuries, rather than necessities.

That helps to explain why some welfare is now directed at people who already have more than enough, though it doesn’t make it any more right.

. . .  does income generally grow faster for people in the lowest fifth of the population or people in the highest? It’s the lowest, because many of those people are young, low-paid people just starting out on their careers, while many of the richest fifth are older people at the peak of their pay, about to retire. That is to say, the category “poorest fifth” may not seem to show much change, but the people in it do. Income mobility is far from dead: 80 per cent of people born in households below the poverty line escape poverty when they reach adulthood.

Mobility is very important. It’s not just how much people have which matters but the ability for those with less to get more.

But why, when both poverty and inequality are declining are both regarded as more serious issues?

None of this is meant to imply that people are wrong to resent inequality in income or wealth, or be bothered about the winner-take-all features of executive pay in recent decades. Indeed, my point is rather the reverse: to try to understand why it is that people mind so much today, when in many ways inequality is so much less acute, and absolute poverty so much less prevalent, than it was in, say, 1900 or 1950. Now that starvation and squalor are mostly avoidable, so what if somebody else has a yacht?

The short answer is that surely we always have and always will care more about relative than absolute differences. This is no surprise to evolutionary biologists. The reproductive rewards went not to the peacock with a good enough tail, but to the one with the best tail. A few thousand years ago, the bloke with one more cow than the other bloke got the girl, and it would have cut little ice to try to reassure the loser by pointing out that he had more cows than his grandfather, that they were better cows, or that he had more than enough cows to feed himself anyway. What mattered was that he had fewer cows.

For some the problem isn’t how much they have but that others have more.

If they use that to motivate themselves to improve their situation that can be good.

If it just makes them resentful and feel they’re owed more, even if they have enough, it’s  merely envy.

Hat Tip: Anti Dismal


Free trade is only real fair trade

July 31, 2013

Fair Trade – that’s got to be good, hasn’t it?

No.

Over at Anti Dismal, Paul Walker discusses an article in The Economist by Amrita Narlikar and Dan Kim which argues that like a lot of other ideas that sound good in theory,  it does more harm than good in practice:

Despite the claims of its champions, the fair-trade movement doesn’t help alleviate poverty in developing countries. Even worse, it is just another direct farm subsidy of the kind most conscientious consumers despise. In the long term, the world needs free trade, not fair trade. . .

The stated purpose of the fair-trade movement is to give economic security to producers in developing countries — often of unprocessed commodities such as fruits, live animals, and minerals — by requiring companies and consumers to pay a premium on the market price.

Until now, any questioning of the fair-trade movement has been limited to the micro level. The movement has faced repeated criticisms, for example, for the relatively expensive fees that producers must pay to get a fair-trade label, which make it ineffective for many poor farmers. Another area of concern is just how lucrative the process is for middlemen and retailers. Finally, several studies show that very little of the premium that consumers pay actually reaches needy producers. Consumers might be surprised to learn that only one or two percent of the retail price of an expensive cup of “ethical” coffee goes directly to poor farmers.

The adverse effects of fair trade are even more worrying at the macro level. First, fair trade deflects attention from real, long-term solutions to rural poverty in developing countries; and second, it has the potential to fragment the world agricultural market and depress wages for non-fair-trade farm workers. . .

Walker points out in spite of the marketing which tries to convince consumers that Fair Trade is good for producers, they get only a tiny percentage of the money made:

An interesting statistic is that in 2010, retail sales of fair-trade-labelled products totalled about $5.5 billion, with about $66 million premium — or about 1.2 percent of total retail sales — reaching the participating producers. There has to be a better way of helping poor farmers. Having only 1.2 cents out of every dollar spent on fair-trade products reach the target farmers is a hugely inefficient way of helping these people. If people wish to help these farmers there has to be charities out there that can transfer more than 1.2 cents per dollar to them.

Also a more efficient and straightforward way to help poor farmers is to remove the massive OECD subsidies and tariffs we see on agricultural products. In other words, a move towards free trade is needed.

Fair Trade has a powerful brand but it’s not one which really helps producers.

They, and consumers, would have much more to gain from free trade, which is the only real fair trade.


Less bureaucracy more trade

June 10, 2013

Quote of the day:

. . . the findings that apply to foreign trade will also obviously apply to the inland trade as well. The more bureaucracy there is then the less trade will get done: the simpler (or less of it) the bureaucracy there more trade will get done. And as it is indeed trade that produces economic wealth this would make us all richer.

What’s really interesting about the less bureaucracy on foreign trade results is that small firms gain as well as large. Thus we’re not seeing the small guy being trampled when the big boys are let off the regulatory leash.

So, there really seems to be no reason at all why we should not reduce bureaucracy in order to make us all richer. And those bureaucrats will now have to go and do something useful for a living: shame, isn’t it? Tim Worstall

He was opining on Anti Dismal’s post Making trade easier and less bureaucratic actually helps trade.

 


Rural round-up

October 20, 2012

Kiwifruit breeder honoured for $3 billion contribution:

The inaugural kiwifruit industry award – the Hayward Medal – was presented last night to a kiwifruit breeder whose work has added around $3 billion to the industry and the New Zealand economy, Russell Lowe from Plant & Food Research.

The new award is named after another great horticulturalist and kiwifruit breeder, Hayward Wright, whose innovation and contribution established the industry. The kiwifruit Industry Advisory Council (IAC) established the Hayward Medal and IAC chairman Bruce Cameron presented Russell with the award at Zespri’s kiwifruit industry conference Momentum, saying his work defined the kiwifruit industry. . .

Commission releases draft report on first statutory review of Fonterra’s milk price manual

The Commerce Commission has today released a draft report on its first statutory review of Fonterra’s milk price manual. The manual determines how Fonterra calculates the farm gate milk price, which is the price paid by Fonterra to dairy farmers for their raw milk.

This is the first of two statutory reviews that the Commission is required to undertake each milk season under the 2012 amendments to the Dairy Industry Restructuring Act 2001 (DIRA).

This first statutory review requires the Commission to report on the extent to which Fonterra’s milk price manual is consistent with the purpose of the milk price monitoring regime. The purpose of the regime is to promote the setting of a farm gate milk price that provides incentives for Fonterra to operate efficiently while providing for contestability in the market for the purchase of milk from farmers. . .

Why co-operatives in farming? – Anti-Dismal:

A few days ago Ele Ludemann at the Homepaddock blog noted that Co-ops key to feeding world and in a sense she is right. Co-ops are more common in argiculture than any other sector of the economy. The big question is Why?

To see why start from the idea that there are two basic ways to organise production, via contracts or via ownership. So what are the costs of each? First consider the costs of contracting. In farming one reason for the formulation of co-operatives was monopsony power. Farming is a business with many producers of highly homogeneous commodities. It is one of the most competitive of all industries. In contrast, the middlemen-handlers and processors – who purchase farm products are often highly concentrated and hence have the potential for exercising a degree of monopsony power over the farmers they deal with. Such monopsony power can be accentuated by seasonality or perishability of agricultural products. . .

Moovers and shakers in dairy industry – Linda Clarke:

Rakaia dairy farmers Rebecca and Brent Miller live in a fish bowl.

Their 1070-cow farm borders State Highway 1 just north of the Rakaia overbridge, and every man and his dog can see what they are up to.

Rebecca says the couple jokes about living in the limelight, but they farm with pride, knowing the cows and land they manage are scrutinised regularly by passing dairy farmers and are often photographed by tourists, who are taken by the green grass, black and white cows and snowcapped mountains. . .

Meatworks plans for Chathams – Gerald Piddock:

The viability of a meat processing plant on the Chatham Islands will be decided by its farmers later this month following the completion of a study into the feasibility of the facility.

The study was finished last Friday and will be presented to the Chatham Islands Enterprise Trust committee later this week.

From there it will be discussed with the islands’ farmers and other interest groups over the next fortnight, Chatham Islands Enterprise Trust chief executive Brian Harris said. . .

And from Facebook:


Greens want to keep milk price high

August 22, 2012

Remember how the Green Party was concerned about high milk prices in New Zealand and wanted something done to make it cheaper?

They’ve changed their tune now and want to keep Canadian milk prices artificially high.

They don’t say that explicitly but that’s what their oppositionto the Trans Pacific Partnership  which would remove agricultural regulations such as Canada’s supply management system for dairy, which aims to preserve farmers’ livelihoods would do.

These farmers’ livelihoods are being paid for through higher prices for dairy products paid for by tax payers and consumers.

A free trade deal which opens the Canadian market to dairy products from other countries – including New Zealand and their closest neighbour the USA – would improve the range and lower the prices for consumers.

It would make life more difficult for some Canadian dairy farmers just as removing subsidies in the 80s did for farmers here, but I don’t know a single farmer who wants the protection back.

Once  Canadian farmers adjust they’ll find they are much better off answering to the market rather than to politicians and bureaucrats and consumers. If they’re not they’ll follow market signals and swap to a different land use from which they can make a decent living without the need of protection or subsidies; or they’ll sell to someone who can cope with the real world.

As Anti Dismal says:

 . . . Some Canadian farmers can’t make a living without regulation and protection, so they should be doing something else. Also the farmer’s lifestyle is costing Canadian taxpayer a huge amount. De-regulation would remove much of these costs to the Canadian taxpayer.

Hasn’t Metiria noticed that New Zealand de-regulated its farming in the 1980s, and yes some farmers went under, but today farming is better and stronger then it ever was under the old protection and regulation regime. . .

Kiwiblog nails it:

. . . So the NZ Green Party is against NZ dairy farmers being able to have fair access into Canada!!! Their concern is to protect inefficient subsidized Canadian farmers, not to help NZ farmers export more milk. . .

. . . The Greens basically don’t like trade. They voted against the FTA with China which has seen us export an extra $12 billion to China since it was signed. They want Canada to keep up its tariffs of up to 300%.

As the most remote developed country in the world, trade is vital to our future. Yet, the Greens want to kill it off. . .

The Green party wanted New Zealand farmers to subsidise New Zealand consumers when the price of milk increased here. Now they want Canadian taxpayers and consumers to keep subsidising Canadian farmers and keep New Zealand produce out of that market.

Any subsidies or protection is unfair and expensive to taxpayers, consumers and other producers.

This is the party which says it promotes fair trade but it doesn’t accept that if it’s not free it’s not fair.


Make trade not war

June 18, 2012

Make love, not war was a catch-cry of the 1960s.

Make trade, not war might not sound as good but trade is a very effective deterrent to hostilities:

If we were living in earlier times, our country would be a prime target for invasion and takeover.

Our combination of natural wealth and small population would put us square in the sights of a bigger, aggressive nation looking to expand. We would be Gaul to Caesar’s Rome, England to Canute’s Denmark.

Our luck in settling a fertile country watered by plentiful rain is envied by many.

As the foodbowl of the South Pacific, we are eyed by countries worried about their ability to feed a population growing in numbers and in quality of life. They show no inclination to invade, thank goodness.

The paranoid among us would point to a takeover by stealth through the purchase of farmland but I don’t see that.

We are beneficiaries of the generations who fought to ensure a country like ours could thrive unmolested. And, befitting such enlightened times, we share our wealth with those who would formerly have enslaved us. It’s called trade.

We don’t have a lot of food to trade but it is of the highest quality. Rightly, we have recognised that we can make the most of our natural resources by feeding the more discerning among the world’s consumers. . .

Trade beats hostility and if we can’t provide quantity we can provide quality.

And for anyone who extols the virtues of fair trade, the only true fair trade is free trade?

Hat Tip: Anti Dismal who added a quote from Otto T. Mallory:

If soldiers are not to cross international boundaries, goods must do so. Unless shackles can be dropped from trade, bombs will be dropped from the sky.


Consumers pay price for protecting producers

May 8, 2012

The Canadian commitment to dairy farmers to continue protection is putting the interests of the minority ahead of those of the majority.

It’s consumers who pay the price of tariffs on dairy products of up to 300% . The cost isn’t only a monetary one, they also pay the price of fewer choices.

Most New Zealand farmers resisted being dragged into the real world but now, nearly three decades on, it would be difficult to find any who would want to go back to subsidies and tariffs.

The process of losing subsidies was painful but the result is worth it.

Forcing us to meet the market has made us much better at what we do. We think about, and act on, what people want to buy rather than what the government is going to pay us to produce. Consumers here and overseas have benefitted from that.

The only fair trade is free trade apropos of which Anti-Dismal shows how it started.


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