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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  • Blue Tim

    Well done Rodders. Shame that as the very good analysis of Rodney is in the NBR it will be ignored as “Neo Liberal Right Wing Propaganda”

  • Benoni

    Rodney Hide is one of the best in depth political analysts in the country.(the other is David Farrar). One of the huge attractions of reading whale oil is we get to read him (and Farrar) on whale oil. I am not going to pay NBRs pay wall.

    • willtin

      And yet, he still hasn’t apologised for letting Len continue to rule the roost, with an apparent minority support.

  • M C Chinaman

    NZ’s best economic performance in recent years came in the mid-90s from 92 onwards. After 2 decades of economic hiatus the economy showed strong growth with unemployment dropping from 11% to a bit under 6%, and private sector real wage growth the highest in a generation. What actions did the Government take before this growth surge?:
    a) cuts in welfare benefits
    b) deregulation of the labour market
    We were constantly told poverty increased, food bank client numbers increased. Inequality certainly increased- so did economic performance.
    Why? That’s a debate that could go on forever and I hope it continues on this post.
    Did East Germany’s equality deliver good economic growth? Did the USA’s inequality condemn them to a far inferior economic performance than East Germany? Has India’s inequality dampened economic growth in recent years?
    You tell me.

  • ElZorrodePlata

    It’s just typical. There have been numerous tirades in Parliament over the past year when it obvious that the person making the tirade has not read the report that they were ranting over.
    So, what is the purpose of the rant? Is it for the better good of the public? Is it to educate the public? Is it to discredit the government? There seems to me to be a common theme here. The loopy left make statements in the media and the house that have no real truth, but the kicker is that the gullible believe that without questioning the source. I wonder how many of the media or politicians that went on a anti National bender about the “Dirty Politics” book actually read the “Dirty Politics” book? I mean, any intelligent person would read the book and notice the missing parts to the book… Like proof!
    It just goes to show, tell a small lie, and everyone knows it’s a lie and chastises you for it. Tell a big lie, everyone knows it’s a lie, but the gullible support that lie and support the person who told the lie, and the person telling the lie gets paid for it!

  • JC

    Eric Crampton had this report sussed nine days ago..

    http://offsettingbehaviour.blogspot.co.nz/2014/12/oecd-on-inequality.html

    “I’ve a specific concern also about the use of New Zealand in this time series.
    The potted history of New Zealand inequality and growth. New Zealand growth
    rates tanked from the late 1970s through the early 1990s as first Muldoonism
    then necessary restructuring put a pretty high cost on the economy. The Muldoon
    stuff was nonsense. The economic restructuring set the groundwork for strong
    growth in the 90s and through the 2000s, but was really really painful. It was
    painful for laid off workers, and it was painful for a whole pile of firms, both
    large and small, that had to reinvent themselves for an open and free market.
    Them ships don’t turn on a dime, and so growth tanked.

    At the same time
    as NZ growth rates tanked due to restructuring, incomes at the top jumped – in
    part due to changes in tax and accounting that brought some of that onto the
    books where it previously had been hidden, and in part due to that folks with
    the skills to adjust to the new environment started being compensated for it.
    That rise in inequality happened almost entirely from 1985 through about 1992,
    after which it wobbled around but didn’t have systematic trends.

    If we
    look then at a long run data series, we get a big increase in measured
    inequality in New Zealand at the exact same time as economic growth takes a
    nosedive. Once the growth in inequality stops around 1992: blammo! Growth starts
    again.

    Is it any wonder, then, that a regression approach based on
    reduced form fixed effect estimation with no dummying out of the reform period
    or other adjustment for it would find huge effects of inequality on growth in
    New Zealand? It’s stuff like this that’s meant that more recent academic work,
    unlike OECD working papers, has been shifting to use of microdata within
    countries to try to figure out what’s causing what. I don’t think the OECD
    papers get us there. ”

    Eric is the go to economist to rebut the Doug Sellmans of the world that want to impose “sin taxes” on us for the abuse of a few and those like the greens who forever look at the costs of everything whilst ignoring the usually greater benefits.

    JC

  • Hmmm… Sounds like a simple case of ‘Lies, bl**dy lies and statistics’. Nothing new for those with an agender and no facts.

  • Reid

    Once again the entire NZ MSM display their execrable betrayal of the profession they represent.

    You’d think Fran might have spotted it.

    But no. It’s left to an ex-politician.

    And not before the lies have already been spread.

    Outrageous doesn’t even begin to describe this so-called 4th Estate crowd.

    Luckily the 20 volume version of the Oxford has many, many more.

  • Michael_l_c

    ‘I guess we can now call the “report” discredited.’
    And angry andy & wussel who along with the MSM never let the truth get in the way of a good story or even a bad story.
    If andy or wussel ever told the truth who would believe them?
    Who would trust them?
    Oh that’s right, I suppose the election results give us that answer. Thankfully they just don’t get that they only have credibility with their sycophants.

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