New inequality statistics are a bit like Pavlov’s bell. Even the hint of them can induce salivation – regardless of whether the meal winds up being meaty in the end.
And who could blame journalists for wagging their tails in excitement? No matter what the statistics say, there can always be a bad news story to tell about inequality.
There are so many different measures of inequality, it takes a lot of effort to be wrong about any claim. The trick is to keep things vague: don’t specify time periods or what kind of inequality you are talking about.
For this reason, newspapers and political party media releases can rather confidently write their “Inequality is getting worse” headlines before they have even seen the numbers.
The net worth statistics released by Statistics New Zealand last week prove once again that fairly ambiguous results on inequality will have the media and political parties seeing what they want to see.
Some disagreements on inequality are, of course, philosophical. But what about the disagreement over whether the latest net worth data shows that inequality is getting worse – much worse – over time? Surely there can only be one right answer.
More or less equal?
The latest headlines have claimed inequality is much worse than what it was a decade ago. Today, the wealthiest 10% of individuals account for around 60% of total net worth, compared with an average of 55% in 2003-10. Or as the headlines embellished, the rich are getting richer while the poor are sleeping in their cars. It was a line the opposition parties did not hesitate to run with as well.
So far, so uncontroversial.
Yet the National Party denied the report showed inequality was growing when challenged in Question Time. Citing a caveat made in the report, Steven Joyce seemed all too happy to point out the agency itself said comparisons over time should be made with caution.
That is because the most recent figures drawn from the Household Economic Survey (HES) are not directly comparable with the previous Survey of Family, Income and Employment (SoFIE). He went on gleefully to point out that while individual wealth inequality may have increased, household wealth inequality had stayed about the same.
Unfortunately, the caveat is probably not the blow Mr Joyce intended it to be. That’s because both sides picked different measures; they were both right about trends over time (though the latest report did not include trends on household inequality).
It is easy to understand how the public could potentially misunderstand inequality issues when even quoting the same report can lead to different conclusions.
But leaving aside different interpretations, even if the top 10% of individuals own 60% of the wealth, it is still impossible to tell why the rich are getting richer and the poor are getting poorer over time. Inequality can rise even if everyone became wealthier.
What do figures show?
On their own, inequality statistics tell us less about the state of the world than the headlines suggest.
Consider the time periods used in the wealth report. The HES statistics comes from 2014/15, while the SoFIE statistics is an average form 2003-10. Wealth is notoriously volatile – more so than income. And at least some of the wealth during this period would have been affected by the Global Financial Crisis – dropping the value of assets and therefore average wealth.
The housing story is not neatly explained by looking at shares of wealth. Housing counts as an asset but the mortgage is still considered debt. We know 51% of all households own the house they live in, making up a significant portion of a household’s total asset value (30%). But loans on property and housing also make up a large proportion of household debt. Mortgages for owner-occupied homes account for 60% of all household liabilities, while the second largest form of debt was from “other” real estate loans (24%).
Depending on what stage of life people are in, debt is a simple fact of life. It is only when New Zealanders reach the age of 65 that individuals pay off most of their debt. Ageing populations will naturally affect inequality, making it a bit nonsensical to compare a 25-year-old’s assets with a 70-year-old’s.
Indebted students
Student loans matter in wealth statistics. Around 70% of a young person’s debt is due to student loans and the least wealthy households, in terms of measured net wealth, owe a median of $20,000 in student debt.
Both the number of people taking out loans, and the value of those loans, has increased since 2005 when interest free student loans were introduced. The magnitude of that debt offsets any assets young people have, so on paper a homeless man with $5 could technically be more “wealthy” than a new graduate.
Unfortunately, human capital and earnings potential are not captured as an asset in net worth statistics.
Even when interpreted correctly, wealth statistics don’t tell us much about many of the things that matter. Take social mobility, for example. Today’s rich could be wealthier than yesterday’s but are they the same people?
Likewise, how many in the lowest deciles remain there across their lifetime or even across generations? And while it is ridiculous to compare a 25-year-old with a 75-year-old, how much inequality is there within the same age cohorts?
When you think about inequality like this it is not inequality in and of itself that should be concern but hardship and lack of mobility. For all the talk about the rich getting richer, one has to wonder how much time and attention was spent trying to figure out how to lift up those in the lowest deciles.
There may be a Pavlovian response by some journalists and campaigners to react to inequality statistics before they even have time to process what the numbers actually say. But for those who care about actually improving the lives of those who are struggling, simply pointing out the have-nots will do nothing to put food on the table or a roof over people’s heads.