To remind of the oddity of M. Piketty’s analysis
We’ve recently muttered something about how odd the Piketty/Saez/Zucman analysis of wealth is. Another example:
Public sector pensions should be reformed. Not just because of the unfunded off-balance sheet £1.4 trillion liability, but because they are fundamentally unfair.
Leave aside all the usuals about public pensions - they’re too high, they boost public sector pay far above private and so on and on. Concentrate just upon the “£1.4tr” and the “unfunded”.
The M. Piketty analysis is that the wealth to GDP ratio matters. As it rises higher then that’s evidence, pure and complete, that society is returning to Jane Austen levels of inequality and the only way a young man will ever gain a wife is if he owns Pemberley.
Well, OK, could happen. Maybe. Possibly.
In the estimations of that wealth that is to be compared to GDP funded pensions - so, the private sector stuff - are counted as wealth. Unfunded pensions - these public sector ones - are not counted as wealth. Even though their existence obviously changes the savings decisions of those who will, in time, collect them they’re just, well, not included. This rather matters when we talk about the distribution of wealth. Also, when we think of the pile of it that is to be compared to GDP.
Imagine - no, just go on, imagine - that these public sector pensions were in fact funded. More like the local authority ones than the NHS ones working on pay as you go that is. £1.4tr is about 50% of GDP. If these were funded pensions then M. Piketty would be spluttering even more over his escargot croissant that Britain was heading ever deeper into Jane Austen territory as the wealth to GDP ratio rose by that extra 50% of GDP.
That pensions are funded is not evidence that only the Pemberleyites get to have children sanctified by legitimate conjugal union. But, in the method of counting being used that is not just the implication that’s actually the bald statement. If public sector pensions were all fully funded (and not, as at present, some are, some aren’t) then that would make Britain worse as the wealth to GDP ratio rose and powdered wigs make their comeback.
This is not a sensible thing to be saying about funded pensions. Therefore the method of counting - even the worry over the ratio itself - is not sensible.
Which is a bit of a worry, no? For everyone in policy circles already does believe that this ratio is a problem and we’re likely to get policies that claim to solve what is a ridiculous measure in the first place.
Tim Worstall