Kate Green, the Chief Executive of Child Poverty Action Group, recently responded to an IEA blog piece in which I examined a CPAG article by Polly Toynbee. I had argued that the article was not really about child poverty, but about Toynbee’s criticisms of the “super-rich”. Kate Green, in contrast, defends Toynbee’s position, arguing that poverty and inequality are inseparable issues. It is to be welcomed that CPAG takes up this debate, if only because it brings out the contours of two different ways of thinking about poverty.
Green quotes a paper from the British Medical Journal which shows a negative correlation between income inequality and various dimensions of child wellbeing, such as health outcomes. Oddly, the paper puts a lot of faith in bivariate correlations. It offers little explanation as to why income inequality – rather than cultural particularities, for example – should be a causal factor. It stops at arguably speculative statements like “greater inequality leads to increased competition and anxiety regarding social status” and “the quality of social relations is poorer in more unequal societies”.
In particular, the assertion that inequality causes poor health would require a causal explanation and not just a correlation coefficient. Whether or not a particular illness is curable in a particular setting depends on the availability of medical technology and expertise. Where does the income distribution fit into this picture? Just out of curiosity, I plotted data for life expectancy against data for inequality in developed countries, and found a (very small) positive correlation. But we would hardly conclude that increasing inequality would make us live longer.
Green then goes on to criticise the relatively high tax burden levied on poor people. Here, she is pushing at an open door. I would go even further. Suppose a group of bright economists was asked to devise a system which ensures that one group in society, A, lags permanently behind another group, B. They would probably recommend levying differential marginal tax rates; say 30% on group B and 70% on group A.
In other words, they would come up with something quite close to the UK’s tax and benefit system. The interaction of taxes and benefit withdrawals, resulting in effective marginal tax rates of 70% and above for vulnerable groups, is an ingenious poverty trap. Before this mess is sorted out, I wouldn’t spend a single thought on the “super-rich”.