Income inequality in New Zealand: The world of “alternative facts”

John McGill finds the term “alternative facts” the most arresting term to have come out of recent global events.

The recent US election has shown up, particularly from the winning side, how the use of any information can be problematic. “Alternative facts” is for me the most arresting term that has come out of the media. Coined by one of the many very aggressively articulate individuals working for the new American president, it suggests truth and facts come in many forms and with one’s view of the world one will always have data to prove they are right.

What about New Zealand?
I will come back to this concept of alternative facts but let me get to the topic: Income inequality in New Zealand. The different sides of the debate rage in this country and appear poles apart for ideological reasons as much as any data put in front of the rest of us. New Zealand is either going to hell in a handcart or we have never had it so good – who do you believe and what statistics are more useful and measured than others?

I don’t know and suspect it will be difficult to ever get any sort of consensus on this.
That recent years have seen a rise in inequality cannot be denied. All the statistics I see reinforce this. What is much less clear is how much inequality is growing and what effect is it having.
One particular chart on this topic that grabbed my attention was in a Scientific American article written by the 2015 Economics Nobel prize winner, Sir Angus Deaton. It gave me pause for thought as it both attacked and reinforced my personal views in the same graphic. It is about national incomes and how they have changed over the past 30 years. The data covers a number of countries many of whom New Zealand normally compares itself with.  

The graph shows inequality growing in New Zealand. However, in international terms we remain near the bottom of the rankings and are in a group including a number of Scandinavian countries. What does this mean? Well in our country even this level of rising inequality may bring any number of problems with rent seeking behaviour in particular being highlighted.
Rent seeking, simply put, is what economists call the behaviour of groups seeking to protect or increase their own incomes through changes in laws, regulations or related measures. The risk is that this behaviour will inhibit growth and innovation.
From another perspective the graphic strongly suggests that when the overseas headlines reach our shores maybe we should treat them with scepticism as the divisions in this country are dramatically different and nowhere near the levels of many other countries.

Back to “alternative facts”: Inequality is usually argued in relativity terms, if we all have the same standard of living, be it very high or very low, inequality doesn’t exist.

We may be starving, for arguments sake, but we shouldn’t feel disadvantaged about it if we are all equally starving. Our ability to understand, debate and perhaps resolve this important issue of inequality lies in our ability to have a measured view of what the importance of different levels of income mean in our country not how they have grown or even how they compare to countries overseas. 

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