“No income growth tradeoff with inequality” – OECD
Yesterday’s Society at a Glance from the OECD provides a boost for egalitarians. This annual report always has something you didn’t know before (did you know that the UK more than doubled education spending between 2000 and 2007? Or that this was a bigger increase – by a long chalk – than any other developed country?)
This year, George Osborne’s favourite international economic think tank addresses a couple of common claims about inequality. One is that inequality is a necessary price for rising living standards, but the OECD finds “no strong tendency for countries that grew richer faster to have rising inequality.” Indeed, if you look at their chart showing changes in household income and changes in inequality, it’s hard to see any relationship at all:
Another is that economic growth is the answer to poverty; if you believe that inequality fuels growth, then living with inequality is the best way to defeat poverty.
However, economic growth and poverty have not been strongly related within the OECD in the past generation. There is little evidence of a relationship between poverty and household income growth in either a positive or negative direction. For example, Ireland has had very rapid income growth over the period and a large rise in poverty, while income growth has stagnated in Belgium in combination with a considerable reduction in poverty.
The report also includes some tough messages for egalitarians. In particular, the OECD’s charts show only a weak relationship between greater equality and better health outcomes. The report will be looked at in a lot more detail in a forthcoming “Touchstone Extra” on Fairness and Prosperity by Howard Reed. (By the way, have a look at Howard’s post on the impact of the 50p tax band, published on Touchstone earlier today, it’s well worth the attention.)