Wealth inequality and Oxfam, again

Every year, Credit Suisse puts out its new databook measuring global wealth. And, like clockwork, Oxfam follows it up a few months later with calls to liquidate the wealthy.

Here follow some fun facts from the Credit Suisse report that provides the data that forms the basis for the Oxfam stuff.

At the end of 2000, New Zealand had 0.1 percent of the world's adults and 0.2% of the world's wealth. Mean wealth per Kiwi adult was USD $67,275; median Kiwi wealth was $30,078. By comparison, the global median wealth per adult in 2000 was $1,867.

By mid-2017, New Zealand still had only 0.1% of the world's adults but had managed to scrounge up 0.4% of the world's wealth: wealth per NZ adult rose to USD $337,441 and median wealth per adult rose to $147,593. Meanwhile, global median wealth per adult rose to $3,582.

Mean Kiwi wealth is five times higher than it was in 2000; median Kiwi wealth is 4.9 times higher. Global average wealth grew 1.8 times over the period and global median wealth grew 1.9 times.

Pretty clearly, Kiwis are doing something to steal wealth from the rest of the world. Because that's the only plausible reason that one person's wealth grows more quickly than another's, right? If Kiwis' wealth had kept pace with international norms, which are presumably fair, New Zealand's median wealth would be $57,750, not $147,593. The median Kiwi has almost $90,000 that should rightly have been shared around to poorer people internationally. And if mean wealth had tracked international norms, average wealth per adult would be about $120,000, not $337,000. Tracked across the 3.4 million adults in New Zealand, that's $735 billion dollars of unfair Kiwi wealth. The couple billionaires that are the focus of Oxfam's Five-Minutes Hate (NZ edition) have about eleven billion between them.

Okay, enough snark, though it is fun. Back to Credit Suisse.

NZ enjoyed the world's fourth highest percentage increase in total household wealth from 2016 to 2017, and the sixth highest in per-adult terms. In total, NZ households are $132 billion dollars richer than they were last year.

As for distribution, NZ's wealth gini is reported at 72.3. The median country's gini is 71 and the mean country's gini is 69.8. If you pull the pdf into an Excel table and sort by wealth gini... actually no. Here it is in a Google Sheet so you can check for yourself.

Anyway, New Zealand winds up being the 80th most unequal country in the world, or the 92nd most equal - on the Gini measure. Pretty middling. The world's most unequal country is Venezuela. After that, and in order, it's Kazakhstan, Egypt, Namibia, Ukraine, South Africa, United Arab Emirates, Bahrain, the US, the Bahamas, Hong Kong, and Thailand. Sweden is the 17th most unequal country on this measure. Germany is 42nd, followed by China at 43th. You have to go past Canada at 71st and the UK at 72nd and the Netherlands at 75th before you get to New Zealand at 80th most unequal.

And Myanmar, where 99.3% of the population has less than $10,000 USD in wealth, is the most equal, with a Gini of only 31.

The plot below is surely too small to read, but the hover-overs might work. If not, hit the link to the Google Sheet above.


New Zealand is a wealthy place. 1,971,000 adults have over USD $100,000 in wealth. Forget per capita stuff: that puts us, in sheer numbers, as having the 26th highest number of people with wealth over $100,000. We also have 201,000 people with more than USD $1,000,000 in wealth - a lot of Auckland houses, if owned mortgage-free, would put you in that tier. 

The wealth decile tables are even more interesting. They sort the world by wealth, split it into deciles. Then they report what fraction of the world's (say) bottom decile live in each country. New Zealand has only a tiny fraction of the world's population, but we have 0.1% of those living in the global bottom decile. Why? You can borrow money for education in New Zealand, resulting in negative measured wealth, making you less wealthy, on paper, than someone living debt free on $1.90 per day - and less wealthy than any newborn. At Table 6-5, we see that New Zealand's bottom decile's share of New Zealand's wealth is negative.

At Table 6-1, we find that New Zealand has 2.1 million people who are in the global Top 10%. And remember that their data's on New Zealand's 3.4 million adults.* So the median adult in New Zealand (again - half have more, half have less) is easily in the global Top 10% by wealth. And 301,000 are also in the Global Top 1%.

If we look at the fraction of wealth held by the top 1% in New Zealand, it shows up at 23.8%. Is that high? They provide that data for a set of 39 countries. Among that set, the fraction of wealth held by New Zealand's top 1% is the world's ninth lowest. The top 1% in New Zealand have a smaller fraction of national wealth than the top 1% in the UK, Spain, Canada, Greece, Romania, Korea, Norway, Finland, Germany, Ireland, Denmark, Singapore, Israel, the US, Poland, South Africa, Sweden, India and more. Did I say Sweden? Yes. Sweden's top 1% own 41.9% of Sweden's wealth.

If you look at the top 5% instead, New Zealand's got the 9th lowest again. If you shift to the share owned by the top 10%, New Zealand's 11th lowest out of 39; Sweden is second highest. 

Takeaways:

• Mean and median wealth in NZ, as reported in the Credit Suisse data, have increased considerably since 2000. One measure of inequality is the mean/median ratio. If the average increases by a lot more than the median, that suggests that the gains are disproportionately at the top. Here, it's almost rounding error between the two. The mean is 5 times higher than it was in 2000; the median is 4.9 times higher. It would be... odd... to look at that and conclude that all the gains are for the rich. If that were true, growth in median wealth would have been much smaller than the growth in average wealth. 
• If you want to rail against Top 10%ers, well, the median Kiwi adult is in the global top 10%. 
• New Zealand is very middle-of-the-road when it comes to global wealth inequality as measured by Gini. 
• If you want to look instead at the proportion of wealth held by the top 1%, top 5%, or top 10%, New Zealand's rich have much smaller fractions of national wealth than do the rich in Canada, Finland, Norway, Germany, Denmark, and Sweden. Among the 39 countries assessed, New Zealand's rich have between the 9th and 11th smallest wealth shares. 

I suppose I'm glad that global poverty has declined so much that charities that used to spend their time trying to help the global poor now can spend their time doing this stuff instead. 

Oh, and do note all the caveats from previous iterations on this stuff (links below). A pile of what's going on for wealth measures winds up reflecting US dollar exchange rates. That won't affect wealth shares within countries but will affect measures of global inequality and measures like "This richest billionaire has as much wealth as the world's howevermany hundred million poorest people, including a pile of people with net debt due to student loans in rich countries and another pile of people outside of the US whose measured wealth dropped because the US exchange rate went up. That'll also affect the number of Kiwis making any year's iteration of the global Top Whatever Percent. 

Previously:

• Oxfam and inequality again (2017)
• You may be in the global 1%
• The poverty of inequality reports (2016)

* I'm pretty sure that they're using an adults denominator here rather than total population. But I can't guarantee it. If they're using total population, then the median Kiwi is just shy of the global top 10%. 

Licensing costs

Occupational licensing of social workers in nursing homes did nothing to improve quality of care in American nursing homes. Here's Bowblis and Smith:

Occupational licensing has grown dramatically in recent years, with over 25% of the U.S. workforce having attained a license as of 2008, up from 5% in 1950. The associated debate as to whether licensing improves quality or is simply rent-seeking behavior has correspondingly grown in intensity. Exploiting a staffing provision of the Omnibus Budget Reconciliation Act of 1987, we estimate the impact of increased licensure of social workers in skilled nursing facilities on quality. The key provision requires all skilled nursing facilities (SNFs) with 121 or more beds to provide at least one full-time equivalent qualified social worker. Using a regression discontinuity design, we find that this provision binds at that margin for a significant share of SNFs. Qualified social worker staffing increases by 8-10%. However, the overall increase in social services staffing is negligible because firms tend to meet this requirement in the lowest cost way – substituting from unlicensed, paraprofessional social services staff to qualified social workers, effectively increasing the licensure level of the marginal social services staff. We find no evidence that the upgrade in social services staffing improves overall SNF quality, quality of life, or provision of social services, as measured by the deficiency scores received by a facility during their annual recertification inspection.

New Zealand should take some note - I understand there's a current review of the qualification requirements for social workers here.

Via @JohnHolbein

Hard to get good advice

A friend in one of the Ministries sends me this, after reading the post on Treasury's interesting problem definition in the RIS for the ban on foreign house buyers:

A lot of the messaging at [REDACTED MINISTRY] at the time it started appearing more likely that there’d be a change of government, was about how giving Helen’s government in 1999 frank advice on the wisdom of its election promises undermined the relationship and caused distrust. So it was made fairly clear upfront that ministries were not going to be telling ministers that their policies didn’t make sense.

Thinking back, that was reported to me at a meeting as having been discussed at a senior officials meeting - interagency senior officials - at which Treasury would've been represented.

Weight it as you will.

I wish Ministries were less risk averse on this stuff and more willing to consider that their Ministers just might want to get their officials' actual views on stuff rather than pandering. And that Ministries also have a responsibility to Parliament and voters in providing accurate assessments of the likely effects of policies.

I'm sure I've seen a paper on this, likely from Ami Glazer, where an agent who's revised her views on something has incentive to preference falsify if the principal will interpret the flip as the agent's having become disloyal.

Adapting to the current scenario: if the Minister will interpret the Ministry's "Your policy will not achieve its intended effect and/or will have these bad side-effects and/or is way less effective than this other policy" advice as the Ministry not sharing the Minister's values, then the Ministry will want to dissemble when there isn't as much at stake so it won't be written off as disloyal or as providers of 'ideological burps'.

It's a fun problem though. Imagine that you're an incoming Minister, and that your Ministry expects to be punished for offering frank advice, and that you actually want frank advice.

Your Ministry is second-guessing you and trying to avoid saying anything that would make them appear disloyal on margins they think are less important, so that they might be believed if a sufficiently important issue comes up and they have to give advice contrary to what the Minister would like to believe. They, and every other Ministry, have had successions of Ministers that have claimed to want honest advice, but who've burned them for providing it. Inevitably, somebody OIAs the advice, the Minister takes flack for it in the press and in the House, and the Minister's gotten mad at the Ministry for the advice or for writing it down.

How can you credibly signal to your incredibly risk averse Ministry that you actually want frank advice? Even Stalin sometimes wanted the real deal rather than pandering.*

Can a Minister require the Chief Exec to make bets on policy outcomes?



* I really like Xavier's post on this. An excerpt:

Yet Pollock makes a good case that Stalin really wanted some genuine discussion and criticism as a way of furthering the progress of science, at least in some fields (though he underplays the connection of Stalin’s views on linguistics with his interest in strengthening national identities and making use of patriotic fervor), and goes on to make the more (speculative) claim that Stalin’s repeated assurances that science only progresses via discussion, and that it is not necessarily class-based, account at least in part for “science’s rising prestige in the post-Stalin decades”. Stalin really needed (some) science to work well in the coming competition of the Cold War, and dimly understood that this could not happen if dogmatism reigned everywhere. Yet as long as he was alive, no such discussion could take place. His influence was like that of an enormous gravitational body; once he intervened (or was even suspected of intervening), the space of discussion became completely warped.

Dogmatism was safety: one needed to know where to stand in order to get on with life. Wherever the orthodoxy was unclear, best not to tread.

Afternoon roundup

A selection of the worthies in the weekly closing of the browser tabs:

• Mike Reddell on the RBNZ and housing collapses: the RBNZ Bulletin missed a few important things when looking at the causes of housing crashes - most notably, that regulation-induced near-vertical supply curves exacerbate price movements when demand shifts. RBNZ has complained before, though, about how housing prices were making it harder for them to run inflation targeting, and I think they'd then pointed to land use restrictions.
• Reddell on Anderton's legacy. How should we think about a nice and decent politician whose ideas, if acted upon, would have been overwhelmingly for the worse?
• If you worry less about cybercurrency volatility and more about how different blockchains can be used to solve problems, here's a good explainer on how Etherium works. 
• Bryan Caplan's Case against Education is now out. I'll be getting a copy. 
• Xavier Marquez on flattery and personalized politics.

A Treasury without opportunity costs

Treasury Secretary Gabriel Maklouf assured us that critics of the Living Standards Framework have it all wrong. 

Sometimes, I hear the criticism that the Treasury’s focus on living standards implies a lack of focus on the fundamentals.  That what we should do is train our sights on the basics: sound public finances, value for money, stable macroeconomic frameworks, and robust microeconomic analysis.

I both agree and disagree with this sentiment.

I wholeheartedly agree that those fundamentals remain critical, for both New Zealand and the Treasury.  As I’ve said before, it remains a fundamental truth that successful economies need, among other things, a stable and sustainable macroeconomic framework, sound monetary policy that delivers stable and predictable prices, a prudent fiscal policy and debt that’s under control.  For a small economy such as ours, fiscal control is critical and rumours of its death have been greatly exaggerated (and I’m happy to nominate any of my Public Sector Chief Executive colleagues as a reference on this point!).

I disagree that these fundamentals are all that we ought to focus on.  The fundamentals are necessary but they’re not sufficient.

Good public policy needs a wide-angle lens and, at its heart, the LSF is about what we mean by ‘value’.

Emphasis added.

One of the fundamental lessons of economics is the concept of opportunity costs. If you want to start a large body of work in a new area, you either need to staff up to do it, or stop doing other stuff to make room for the new project. This should be obvious to anybody whose boss has ever said "Oh, could you also do this by the end of next week?" The correct answer is almost always "Sure, but here's a list of the three other things I was going to get done - which should I push out to do this new thing?"

Hiring a pile of non-economists to do living standards stuff has an opportunity cost for rigorous analysis on other margins.

Case in point, Treasury's Regulatory Impact Statement on the policy banning foreigners from buying houses in New Zealand.

The problem definition section, required in establishing exactly what problem is out there that the policy is meant to solve, is to the point.

This proposal seeks to implement the Government's 100 day commitment to "ban overseas speculators from buying existing houses." 

What a marvel of problem definition! Empowered by the Living Standards Agenda, Treasury will soon be able to move on to even more concise definitions of New Zealand's pressing problems, like "The Government wants to do something about foreigners", or perhaps even "A Minister heard something on the radio that made him angry."

Section B's Summary of impacts is at least as stunning. It notes that costs will fall on regulated parties, the Overseas Investment Office, and third party agents involved in property transactions. Ignored are the costs falling on owners of New Zealand property who might like the opportunity to sell to a broader range of buyers. But those kinds of effects only matter in old-style cost-benefit assessment and not in the new Hexagon of Happiness, Pentagon of Pleasures, Dodecahedron of Delight - or whatever the latest variation of it now might be. In a world where more economists were available at Treasury to hit this stuff, maybe these things could be more rigorous.

I shouldn't be too harsh on Treasury here - they can't do much rigorous work on stuff that parties commit to in a 100-day-plan. An alternative and plausible reading of that problem definition is "We see absolutely no problem here that we can specify so we're just going to say the government made us do it."

But I'd have far preferred that Treasury instead work backward to the real problem Labour was trying to solve around housing shortages, then in the RIS note that banning foreigners is a dumb solution relative to plausible alternatives like getting on with the infrastructure financing changes that Phil Twyford's supported. I guess it's always a balance between pandering and providing free and frank advice. But if it's always the teaspoon of sugar and never the medicine, there'll be problems.

Anyway, I'll expect more of this kind of thing if, in the real world, there are opportunity costs to Treasury shifting away from the fundamentals.

Treasury has apologised for an error which could see fewer children projected to be lifted out of poverty as a result of Government families packages.

It's not yet clear whether heads will roll over the coding error, but officials have confirmed that child poverty reductions were over-estimated when the previous National Government delivered its Budget in May last year and the error appears to have carried through to affect the current Government.

It is understood one of Prime Minister Jacinda Ardern's first big speeches of the year would include a child poverty focus, but the Treasury blunder will likely throw early plans into doubt with the Government unable to be certain of its figures.

The exact number of children expected to be lifted out of poverty is not likely to be known until the end of February.

Again - really don't want to be too hard on Treasury for the coding error - it's hard not to get the occasional screw up in this stuff. Lumley's take is good. [Update: So's this at RNZ] But it points to the problem of opportunity cost. Getting the fundamentals right isn't easy. The more they're pushed to run Living Standards stuff, the more likely we'll get screw-ups on what I'd thought was more fundamental. And the more annoyed I am about how hard Treasury pushed to be stuck in this spot.

I chatted a bit with a Newshub reporter on this stuff yesterday afternoon.


Postscript: National's carrying on during the election campaign about the number of kids its tax change would lift out of poverty bugged me. At least some of it was an effect of finally inflation-adjusting the tax brackets. If inflation-adjusting the bottom tax brackets brings kids out of poverty, then it has to be the case that failing to adjust them in the prior years drove those same kids into poverty.

You can imagine a particularly stupid political ratchet where governments don't inflation-adjust tax brackets, more households hit a disposable income measure of household poverty because inflation pushes up the amount of tax they pay, and then every government in its third term announces an inflation adjustment that brings those same households back above the defined income line. Everybody celebrates the magnanimity of the government that saved those children from poverty while ignoring that failure to annually adjust the damned thresholds is what caused those kids to have fallen below the line in the first place.

Rental rationing

Louis Houlbrooke has an eye for interesting questions.

The crazy thing about the current rental squeeze: queues outside flat viewings suggest that landlords are *under-pricing* flats. We're still early in the student season, how long before landlords reading the news savvy up and hike rents further?

— Louis Houlbrooke (@louishoulbrooke) January 16, 2018

Why wouldn't rentals simply clear on price?

The credit rationing literature points to one potential answer. In that literature, the market for loans doesn't clear just on interest rates because the people willing to borrow at the highest rates know that they're very risky types. So instead you get interest rates a bit below what would otherwise clear markets and lenders choosing among applicants to get borrowers who are good bets.

Application to rental markets? Suppose it's hard to evict a bad tenant. It'll take a long time, it'll be a hassle, and the tenants might destroy the place while you're going through the tenancy tribunal. If you set a high price and if it's hard to monitor and police what's going on in the flat, you might have problems. The high bidder might be the one expecting this to be a short-term game.

Landlords would want to evaluate a potential tenant's bid across a pile of hard-to-specify and possibly illegal-to-specify (but impossible to police unless you're dumb enough to write it in the ad) non-price margins. If you want that, you want to have excess demand at the posted money price so that you can clear on the other margins.*

Implications:

• The harder it is for landlords to evict problem tenants, the more we should see this kind of non-price rationing;
• The harder it is for landlords to specify their actual requirements in a for-let ad, the more we should see queuing. Otherwise, you'd see less queuing and more clearing on prices among those who meet the landlord's other requirements;
• Non-price rationing should be more common for flats where landlords are more worried about there being problems. 
• The burden of non-price rationing will be felt hardest by people who would be good tenants but who landlords can't distinguish from risky tenants. They'll keep bidding on flats and keep failing to get one;
• If you're in the market for renting, and you're of the type that landlords would prefer to rent to, you'll do better by finding a way to credibly signal as much. 

Meanwhile, Dan Rowe over at The Spinoff complains simultaneously that rents in Wellington are too high and that there's too much queuing and non-price rationing and that tenancy protection laws are too weak. This is what happens when you don't structure your thinking around an underlying economic model. Price increases and non-price rationing through queuing are both outcomes of demand exceeding supply at the prior price. 

Unless you address the underlying shortage, all you can do is choose among various ways of rationing scarce supply - whether prices or queues. Doing it through prices at least provides investors with incentive to build new rental stock and provides homeowners with a reason to put up with the hassle of having a tenant in the spare bedroom. Doing it the other way doesn't. 

It is depressing how many people still like rent controls, despite the evidence against it. 

* Please remember that this is a positive rather than a normative analysis. Not saying that any of this is good, just that it's how we should expect incentives to play out. 

Tertiary access isn't about tertiary fees

If you want to improve university enrollment rates among Maori and Pasifika kids, you should look at what's going on earlier in the education system.

Lisa Meehan, Gail Pacheco and Zoe Pushon find that ethnic gaps in school performance are the largest contributors to ethnic gaps in university enrollment rates. Those gaps matter far more than differences in socioeconomic status or parental education.

They use administrative data held in the Integrated Data Infrastructure to control for meshblock-level deprivation index scores rather than school decile rankings, providing a finer grained measure of background characteristics. They also have parent's highest degree from the 2013 Census, student ethnicity, school characteristics, migrant status, and distance to the nearest bachelor-granting institution.

Table 4, copied below, provides a decomposition of the relative contributions of the different variables. So the total difference in bachelor's level enrollment between Maori and European is 19.84 percentage points. If Maori students had the same characteristics as European students on things like frequency of switching schools, migrant origins, neighbourhood deprivation index, school characteristics, NCEA Level 1 performance, number of school notifications and parents' education, that gap would drop to 2.64 percentage points. Providing Maori students with the same NCEA Level One results as European students would increase their enrollment rates by 13.39 percentage points. Everything else is rats and mice. Swapping Maori students' neighbourhood deprivation index figures with Europeans' would increase Maori enrollment by 1.45 percentage points.

When they disaggregate school performance, most of the work's being done by the number of merit and excellence credits; it would be interesting to have further work comparing differences across types of credits - an excellence in calculus might be different than an excellence in gym.

In Table A3, when they run school-level fixed effects, the school fixed effect does more than the neighbourhood deprivation index in explaining the Maori-European participation gap.*

The big upshot: neighbourhood background characteristics are important in explaining ethnic gaps in student progression to Bachelor's level study, but how students perform at NCEA Level 1 is what matters most. You could argue for a multilevel model where deprivation characteristics work through two channels and also affect NCEA Level 1 performance. But all of it suggests that if you want to increase enrollment in Bachelor's level study among Maori and Pasifika students, you shouldn't be looking at zero-fee first year university policies. You should instead be working to improve performance at secondary school.

And that's exactly what I'd argued in our report a couple years ago on the zero percent student loans programme. I there argued that the $600 million per year that's blown on subsidies through the zero percent loans scheme should instead be directed to means-tested funding for tertiary students in need, and toward better preparation for tertiary study in high schools with poor track records in advancing kids through to tertiary study.

Instead, the government's looking to compound the problem of zero percent loans with a fees-free policy for first-year study. The inevitable critique is "Why not do both! Fees-free study and big increases in secondary school funding!" But the government is trying to work within a budget constraint that binds. Everything has an opportunity cost.

Meehan et al conclude:

Overall, our results suggest that ethnic-based policies aimed at encouraging entrance to bachelor’s degrees are likely to have a limited effect if used in isolation. Rather, our findings highlight the need for policy intervention earlier in the education system to help lift the NCEA performance of Māori and Pasifika, and in doing so improve the likelihood of their participation in higher education qualifications, such as bachelor’s degrees.

* Now, imagine a world in which it were not illegal for Meehan et al to simply array schools by their fixed effect and to announce the league table. Stats NZ won't allow it because anything individually identifying, including things that identify individual schools, is forbidden. But imagine. Wouldn't it be interesting to know, correcting for everything else about the kids, which schools have the best track record in progressing students through to Bachelor's level study?

Update: Dave Guerin weighs in, from his excellent Ed Insider newsletter:

2. Access Economist Eric Crampton looked at an academic paper on ethnic disparities in bachelor’s degree participation (it’s basically the same research as released last year by the Productivity Commission). He argued that the best value for money would come from targeted support to tertiary students, and better preparation for tertiary study (not interest free loans or Fees Free). He’s quite right too.