Welfare economics

About that income inequality thingy the left always bang on about

All last year we heard various Green and Labour politicians go on about income inequality…and how the “poor” of New Zealand are sooooo hard done by.

On top of that they claim that National is evil incarnate and the poor are being hammered by National just for shits and giggles.

They point to all sorts of weird economists who have written books that upon examination the facts don;t stack up.

Buy that has never stopped the left-wing pushing a massive lie on the people, just look at global warming by way of an example.

Since they like quoting reports and overseas facts how about they report this one…the one that says that inequality isn’t growing, it is reducing….and has been for 20 years. (Kind of like there has been no warming for 20 years also)

Income inequality has surged as a political and economic issue, but the numbers don’t show that inequality is rising from a global perspective. Yes, the problem has become more acute within most individual nations, yet income inequality for the world as a whole has been falling for most of the last 20 years. It’s a fact that hasn’t been noted often enough.

The finding comes from a recent investigation by Christoph Lakner, a consultant at the World Bank, and Branko Milanovic, senior scholar at the Luxembourg Income Study Center. And while such a framing may sound startling at first, it should be intuitive upon reflection. The economic surges of China, India and some other nations have been among the most egalitarian developments in history.

Of course, no one should use this observation as an excuse to stop helping the less fortunate. But it can help us see that higher income inequality is not always the most relevant problem, even for strict egalitarians. Policies on immigration and free trade, for example, sometimes increase inequality within a nation, yet can make the world a better place and often decrease inequality on the planet as a whole.

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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.

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Guest Post – Douglas wrong about National

A guest post from Lindsay Mitchell.


Making some otherwise sound recommendations to his old party, Labour, Sir Roger Douglas made this statement:

 “National’s do-nothing, status-quo approach to economic and social policy provides Labour with a real opportunity to get back up on its feet.”

In the last six years National has done more to address working-age welfare dependence than Labour did in the prior nine.

A Labour supporter would reject my claim on the basis that numbers on the unemployment benefit took a nosedive over their incumbency. That’s true. Work and Income put enormous effort into those on an unemployment benefit, and Labour luckily oversaw an economic boom (giving them full credit for which is as questionable as blaming National for the GFC.)

But chronic welfare dependence, a crippling social and economic issue for New Zealand, lies in the other main benefits:  pre-reform they were the DPB  and Sickness/Invalid benefits combined.

In 2009, National set up the Welfare Working Group, and from there, commissioned the Taylor Fry actuarial work which exposed where long-term reliance is concentrated. The revelation that teen parents and other young beneficiaries entering the system at 16 or 17 would stay there the longest was no surprise.

Through the early 2000s, while only 2-3 percent of the DPB total at any given time was teenagers, between a third and a half of all recipients had begun on welfare aged under twenty. Throughout Labour’s administration I argued that average stays on welfare were much longer than government issued figures. Point-in-time data produces much longer averages than data collected over a period of time, but it suited Labour politically to use the latter data to minimise average stays and downplay dependence.

To understand this statistical phenomena imagine a hospital ward with 10 beds. Nine are occupied year around by chronically ill patients; one is occupied on a weekly basis. At any point-in-time 9 patients have an average stay of 12 months and one, an average stay of one week. But calculated over the year, 85 percent of total patients had an average stay of just 1 week. Equate this to spells on welfare and you can see how long-term dependence can be disguised.

Here is the huge difference between National and Labour.

National looked for what Labour had denied.   Read more »

Lindsay Mitchell – The Greatest Risk

Lindsay Mitchell has written a fantastic piece and has asked me to publish it so it gains a wider audience. I am very happy to do so.

As Rodney Hide said in the comments, this should be pinned to every wall in Treasury.


Growing up in 1960s New Zealand, houses were smaller and families bigger. Paradoxically, overcrowding and child poverty weren’t a major issue. Most families had two parents and many could even afford a stay-at-home mum. A very small percentage of families experienced financial hardship associated with an absent father.

What changed?

In 1973, influenced by the Royal Commission on Social Policy’s urgings, the government introduced a statutory benefit for sole parents regardless of the reason for their single parenthood. In the following 20 years unmarried births with no resident father more than quadrupled from around 2,500 to 12,000 – 22% of all births – annually. The relatively generous DPB saw single mums dropping out of the workforce. (The Royal New Zealand Plunket Society partially attributes this development to the eventual non-viability of Karitane hospitals which had provided live-in employment for unmarried mothers.)

These births accumulated in the statistics. By the early 1990s around a quarter of a million (mostly) mothers and children were dependent on the state for their survival. But the benefit still kept them above the poverty threshold.

When the incoming National government of 1990 opened Treasury books, the news was bad. This is where the authors ofChild Poverty in New Zealand pick their story up. They describe “benefit cuts of between 10 percent and 30 percent for many beneficiaries supporting children.” In fact, for a lone parent with one child, the cut was 10.7%; for those with two, 8.9 percent. The universal family benefit was abolished, but half of the savings were reallocated into increasing Family Support for beneficiaries and low-income families.

Nevertheless, the drop in income was enough to push beneficiary households below the poverty threshold (though they had probably been barely over it prior). Compounding this was the high number of partnered jobless parents created by an unemployment rate exceeding 11 percent in 1992. From that time the proportion of children in poverty, measured at below 60 percent of median disposable household income after housing costs, has been flat to falling slightly.

Sixty nine percent of children in sole parent households are poor compared to 15 percent in two parent families. Today, a lone parent heads around 30 percent of all families with dependent children. Long-term dependent sole parent families aren’t typically the result of a marriage breakdown. They hail from very young mothers with no educational qualifications, work skills or regular partner.

Every year around one in five new-born babies will be reliant on their caregivers benefit by Christmas. This pattern has persisted from at least 1993. For Maori the number jumps to over one in three.   Add to this Treasury’s advice to the Ministerial Committee on Child Poverty,

“…around 1 in 5 children will spend more than half of their first 14 years in household supported by main benefit. This group is at the highest risk of material hardship and poor outcomes across a range of dimensions”.

The worrying aspect of this pattern is its persistence through good economic times. In 2007, when New Zealand had record low unemployment, the percentage bottomed at around 19%. Over three quarters will rely on a sole parent benefit, the remainder on either an unemployment or disability benefit. While some of the reliance will be due to unforeseen circumstances like are job redundancy, most could have been predicted by the parent.
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In a recent Listener column Jonathan Boston wrote “…it is worth pausing and considering how easy we would find it to raise children under such circumstances.” The same counsel should be put to those people who can actually change the pattern. Though too much emphasis on “personal responsibility” would give less weight to “fairness and compassion” according to the book. Why these societal attributes would be mutually exclusive is unclear. Read more »

Oh no, another of Labour’s mantras of misery destroyed

Labour continues to run a mantra of misery about New Zealand, despite their claims of a positive campaign.

I think they think that if they say it enough it will become a truism rather than the Nasty party reputation they have built.

Unfortunately for them their campaign is built upon problems that are slowly coming right as the economy grows and their mantra of misery is becoming tiresome in teh face of facts.

One area that they have harped on about, inequality is also coming right according to latest reports.

Child poverty has dropped back almost to pre-recession levels, as New Zealanders’ jobs and incomes finally climb out of a five-year downturn.

The Ministry of Social Development’s latest annual report on household incomes says the number of children in households earning below 60 per cent of the median wage fell by 25,000 to 260,000 last year, the lowest number since 2007 when there were 240,000 children in poverty.   Read more »

More good news, less people on benefits and more jobs available

You could say the good news just keeps on truckin’ on:

The labour market is taking off, with more jobs advertised in March, continuing a run of rises for three months in a row, a bank survey shows.

A strong economy is now being accompanied by rising employment, that will provide a backbone to household income growth over the months ahead.

The latest ANZ job ads survey points to unemployment falling from 6 per cent at the end of last year to 5.7 per cent at the end of March and dropping even more in coming months.

The number of job advertisements lifted 1.1 per cent in March, seasonally adjusted.

“This bodes well for an ongoing downward trend in the unemployment rate.” ANZ said.

Job advertising on the internet in March rose 2 per cent but fell 4.6 per cent in newspapers.

In the three months to March the level of internet job advertising lifted 6.4 per cent compared with the previous the three months, to be 15.3 per cent higher than a year ago.  Read more »

Guest post: Are thousands of people being denied benefits?

by Lindsay Mitchell

The Daily Blog recently ran the graph below along with the headline, “Billions of dollars stolen from the unemployed”. Mike Treen wrote,

The combined efforts of both National and Labour governments’ punitive policies towards the unemployed seems to have removed over 100,000 people from rightful access to an unemployment benefit.

Source/ The Daily Blog

Source/ The Daily Blog

In today’s Herald Brian Gaynor has been exploring statistics, their variability and utility. He produced the following graph which tracks the quarterly difference between those officially unemployed (using the same Household Labour Force Survey data Treen used) and the new Jobseeker Benefit (projected back to 2008 by MSD):  Read more »

Top work Paula

Paula Bennett has slashed the amount of taxpayers money paid to bludgers with her welfare changes.

Tougher welfare rules have helped cut the future cost of the welfare system by $3 billion.

A new valuation of the future costs of social welfare, issued by the Social Development Ministry yesterday, shows the total lifetime liability of the system jumped in the year to June last year from $78.1 billion to $86.8 billion,

But this was almost entirely because of falling interest rates, which lifted the current value of future welfare costs.

Estimated future costs also increased slightly because the unemployment rate was 0.6 per cent higher than the Treasury had forecast when Australian consultants Taylor Fry prepared their first $1 million baseline valuation as at June 2011.

But the number of people on benefits last June was less than expected for that level of unemployment.  Read more »

And Finland Comes Where?

David Shearer loves to bang on about Finland. The teachers unions love to say we don’t need Charter Schools because of the educational/social performance of Finland, ignoring the fact that Finland requires a minimum of a masters degree in order to be accepted to teachers college.

The latest UN Development report – signed off by none other than Helen Clark lays their arguments to waste (again).

A quick list of the first 21 is below.

The country in 3rd place happens to be one the left repeatedly try to bash too – seems to be doing okay on these measures and everyone knows where the vast majority of the world’s top Universities are situated.

Again – why should we be like Finland?

Human development indices (including Human Development Index, an Inequality-adjusted, HDI Gender Inequality Index, Multidimensional Poverty Index)

1 Norway

2 Australia

3 United States

4 Netherlands

5 Germany

6 New Zealand  Read more »

Welfare reform: A radical solution

Continuing on with Peter Cove’s article about what he learned in the Poverty War, he proposes a radical solution for welfare reform:

My experience with long-term welfare clients has led me to propose a radical solution: that we abolish all cash welfare, as well as food and housing assistance—except for the elderly and the physically and mentally disabled—in order to move from a dependency culture to one of work-first. This recommendation may sound impractical at a time of high unemployment. But the work-first principle can easily be implemented even in a down economy, as America Works proved by getting jobs for more than 500 ex-convicts in Detroit—a local economy with 14 percent unemployment—in the past two years. After all, despite the economic downturn, more than 3 million jobs per year go unfilled in the United States.

If it works for ex-convicts then why can’t it work for others?

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