Another reason Gary Stephenson is wrong
In fact, another one of those reasons why everyone talking about the wealth distribution, wealth inequality, is wrong.
The Pimlico Journal has an excellent piece of reporting on the costs of social housing and housing subsidies. As they - correctly - point out not charging market rents is a subsidy. If you’re not including opportunity costs then you’re not doing economics and as we’d like to do economics we must include opportunity costs.
There are 31,000 households in this category, each receiving an average subsidy of £21,595; and again, the majority of these households, 18,000 of them, are in inner London, with an average subsidy of £26,106 per year, representing £564 million in rental subsidies.
£26k a year is real money. That’s also a subsidy that lasts a lifetime - gain a social tenancy and you don’t lose it. £26k a year for an adult lifetime is what, £1 million? Somewhere around that dependent upon how we bring it to a net present value. And, well, yes, a million quid is real money. It’s actually wealth. But we do not include that in our estimations of wealth. Which very much skews our estimations of wealth inequality.
The overall costs of this subsidised housing system are put at about £50 billion a year. We can and should capitalise that - and why not use the method employed by Saez and Zucman? 5% rate, meaning that’s £1 trillion of wealth. Total British housing wealth as generally recorded as in the £5 to £6 trillion range. But if we now add in that £1 trillion in subsidised value and allocate it - as it must be - to those with low incomes we will have radically changed the wealth distribution.
The problem with much of the whining about “excessive” wealth concentration is that it takes no account - none, zip, nada, in fact directly rejects doing so - of what we already do to change that wealth distribution. Access to free medical care for life - the NHS - is wealth. To subsidised housing, the state pension, the welfare state at all levels and of all types, free education for children, they’re all wealth. And absolutely none of them are included, by design, in our calculations of wealth equality or inequality. We seem to spend some £500 billion a year on all these things (very b of envelope, that) which means we’re moving around £10 trillion of wealth. With total household wealth of £16 trillion that really does change the distribution radically. And, as we say, no note of this is taken in anyone’s calculations at all. No, not even in the numbers of those who insist we can solve societal problems by expropriating the rich - they adamantly refuse to note how much of the claimed problem is already solved.
Mr Stephenson is not the only one. The entire sector, the whole way the wealth distribution is measured, is wrong. Wealth inequality is very much lower than currently claimed.
Think, just for moment. Say we took all those in the bottom half of the income distribution, everyone below median, and guaranteed them the median income. Then also said here’s a nice 4 bedder house to live in buckshee and free. We would have changed income inequality by tbe way we measure income (after tax and benefits, after housing costs) substantially. We would have changed, by the way we measure wealth, wealth inequality by not one percentage point, basis point nor pip. That’s insane.
Before we start getting all het up about the wealth distribution we should, must, measure the wealth distribution properly. For once we do that we might well decide that there’s nothing we need or desire to do about it. Even, that we already do too much.
Tim Worstall