So-called OECD report into inequality slammed by Rodney Hide

In the NBR Rodney Hide does what no mainstream journalist apparently bothered to do, actually read the co-called report by the OECD into the economy.

Andrew Little and Russel Norman were involved donkey deep in slamming the government over the “report”, but it appears they didn’t read it either.

Rodney Hide did however.

[W]hat a proposition! That inequality hampers growth.

It sounds nonsense, but is it? I thought on your behalf, dear readers, I should wrap a wet towel around my head and find out.

The first thing I noted was that it’s not an official OECD report. It’s a working paper. “The opinions expressed and arguments employed are those of the author.” “OECD Working Papers should not be reported as representing the official views of the OECD.”

Ok so not a report at all, just a working paper from some womble.

The study itself starts badly saying it’s not known whether inequality has a positive or negative effect or whether it has any effect at all. The author has no theory. There is no testable hypothesis.

Undaunted, he dives into 40 years of data across 31 countries. His trusty computer and statistical package grinds away.

Aha, out spits a result. It’s significant! But it makes no sense. Especially the bits that didn’t make news.

A flawed “report” at that.

The only variable to explain differing economic growth through the years and across countries is – you guessed it – inequality. Differences in educational achievement and investment – specifically estimated – had no effect.

Sacré bleu! There might be good reasons for spending money on education but, according to the Working Paper, economic growth isn’t one of them.

It’s the same for investment in plant and machines. Forget it. It doesn’t boost growth. The investment in physical and human capital over the past 40 years in developed nations has not made a jot of difference. It’s been all for nought.

The headlines should be screaming, “250 years of economics refuted!” “Economists to start again.” Or, accurately,“ Another Dud Study.”

Why couldn’t the mainstream journalists find this out?

Oh, that’s right, they just cut/paste press releases from vested interests.

Here comes the kick in the balls for Little and Norman.

A close inspection of the statistical tables shows a result that Mr Little and Dr Norman won’t like: the richness of the top 20% of income earners makes no difference. The rich getting richer has no impact on growth.

Oh and pulling up the bottom 10% has minimal effect. It’s where the third and fourth decile lie relative to average income that matters most. It’s hard to imagine Dr Norman and Mr Little announcing they’ve been wrong all these years: soaking the rich is not where it’s at – and nor is pulling up the bottom.

But the headline worked for them and affirmed what they have always known.

Beyond that, the study is neither here nor there. It demonstrates that you can get odd results running data through a computer and that statistical techniques don’t advance economic understanding.

Economics explains and predicts human behaviour solely through changes in income and price. That’s it. Correlating statistical aggregates isn’t economics. There’s no economic mechanism for economic inequality to affect growth.

Besides, we know how to make a country rich. We know what poor people need to prosper. Adam Smith figured it out without computer and without calculating p-values.

Pretty damning…I guess we can now call the “report” discredited.

 

– NBR


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As much at home writing editorials as being the subject of them, Cam has won awards, including the Canon Media Award for his work on the Len Brown/Bevan Chuang story.  And when he’s not creating the news, he tends to be in it, with protagonists using the courts, media and social media to deliver financial as well as death threats.

They say that news is something that someone, somewhere, wants kept quiet.   Cam Slater doesn’t do quiet, and as a result he is a polarising, controversial but highly effective journalist that takes no prisoners.

He is fearless in his pursuit of a story.

Love him or loathe him.  But you can’t ignore him.

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