The poverty of inequality reports

Dr Eric Crampton
Insights Newsletter
25 January, 2019

Everything has its season. The slow January news period brings Oxfam’s annual condemnation of wealth inequality and calls for redistribution. And every January, economists go through their figures to show that, once again, Oxfam has played fast and loose with the numbers.

Oxfam combined Credit Suisse data on the decline in wealth for New Zealand’s least wealthy with Forbes data on the only two Kiwis who made it onto the Forbes list of billionaires. Oxfam presented the difference as a growing gap between rich and poor.

Oxfam’s analysis is riddled with problems. Let us consider the most obvious one.

Credit Suisse’s 2018 report on global wealth, which formed the basis for Oxfam’s work, showed that wealth in New Zealand became somewhat more equally distributed over the prior year, not less. The Gini coefficient is a standard inequality measure. Credit Suisse’s reports show that New Zealand’s wealth inequality declined from last year’s 72.3 Gini points to this year’s 70.8 Gini points. We are positioned midway between France and Canada.

The Credit Suisse report showed that while the least wealthy New Zealanders did see a drop in wealth, so too did richer Kiwis. Wealth dropped across the board according to their measure – the two billionaires aside. Why? Wealth is measured in US dollars, and the exchange rate dropped. The reduction in wealth, measured in US dollars, affected all parts of the income distribution.

New Zealand was even listed among the countries with the largest drops in the number of people in the world’s wealthiest 1% – 20,000 fewer of us are in that group. But we remain a very wealthy place. New Zealanders remain strongly over-represented among the world’s wealthiest 10%, 5% and 1%.

We can perhaps forgive the Dominion Post’s Tom Hunt for playing along with Oxfam in a front-page story on the report headlined, “Rich richer, poor poorer”. A lot of news outlets presented similar stories, and none of them bothered to check the data. More accurate headlines might have read “Fewer Kiwis among the wealthy global elite – and wealth inequality is down too”, or “New Zealand is poorer (but it’s mostly currency movements)”, or even “All things considered, New Zealanders are pretty wealthy”.

It is also the season in which we expect the final report of the Tax Working Group, and a government response. We hope both are somewhat less credulous than New Zealand’s reporters.

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