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Some economic findings are simply obvious

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Or at least, some economic findings are obvious if one takes a mere moment to think about them. Take this for example:Wealth gaps are bigger. Black home-ownership rates are under half those of white. Bangladeshi adults have a quarter of the wealth held by white adults on average. With evidence of such inequalities, it’s beyond me how anyone thinks it’s job done.Wealth inequality is greater than income inequality. Well, that’s not just a common finding it’s one that holds for everywhere, everywhen. But with respect to ethnic disparities in the Britain of today we can and should go further.Some 35% of household wealth, the thing being measured, is property equity. That people on lower incomes have less of this is not greatly a surprise. The further being, well, we subsidise rents to the tune

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Or at least, some economic findings are obvious if one takes a mere moment to think about them. Take this for example:

Wealth gaps are bigger. Black home-ownership rates are under half those of white. Bangladeshi adults have a quarter of the wealth held by white adults on average. With evidence of such inequalities, it’s beyond me how anyone thinks it’s job done.

Wealth inequality is greater than income inequality. Well, that’s not just a common finding it’s one that holds for everywhere, everywhen. But with respect to ethnic disparities in the Britain of today we can and should go further.

Some 35% of household wealth, the thing being measured, is property equity. That people on lower incomes have less of this is not greatly a surprise. The further being, well, we subsidise rents to the tune of some £23 billion a year through housing benefit. Using the Saez and Zucman capitalisation technique this is some £400 billion or so of wealth. That’s £400 billion of wealth largely transferred from richer to poorer - something we don’t include in our calculation of the wealth distribution.

We can and should go further than this too. A lifetime tenancy - often enough an inheritable one, therefore lasting for more than just the one generation - at below market rent as with council, social or affordable housing is also wealth. Except we don’t count it as such when measuring the wealth distribution.

Again, to go further. It’s not just that we are not measuring wealth properly - by including the things we already do to make that distribution more equal - we are also deliberately subsidising people into =not having wealth by our usual standards of measurement. One reason that the poorer among us don’t have housing equity is because we specifically and deliberately subsidise rents so that they don’t attempt to gain any housing equity. This is going to affect the ethnic wealth distribution because, as we’ve already noted, the ethnic income distribution is skewed.

No, we don’t recommend the absence of housing subsidies for the poor. As should be well known we recommend making housing cheaper for everyone. But we would insist that the effect is most definitely there. One reason why the wealth distribution is so skewed is that we subsidise people not to amass wealth by the measurement yardstick we use.

The greatest portion of household wealth is of course pensions and there the situation is similar - we don’t include the effects of the state old age pension. Exactly the thing which by existing reduces the incentive for the income poor to create their own pension wealth.

Why is wealth inequality in Britain so great? Because we have a welfare state which reduces wealth inequality but we don’t count the effects of this. Why is the ethnic wealth distribution so skewed? Because the income distribution is - that welfare state specifically and deliberately reducing the incentives of the income poor to amass wealth in the forms we measure.

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Tim Worstall
Tim Worstall is a British-born writer and Senior Fellow of the Adam Smith Institute. Worstall is a regular contributor to Forbes and the Register. He has also written for the Guardian, the New York Times, PandoDaily, the Daily Telegraph blogs, the Times, and The Wall Street Journal. In 2010 his blog was listed as one of the top 100 UK political blogs by Total Politics.

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