If only Owen Jones actually understood economic numbers


We do find it difficult to understand Owen Jones. He has, in recent years, told us that Syriza in Greece, Podemos in Spain, Chavez and Maduro in Venezuela have all been economic examples we might want to copy. Quite why such a collection of basket cases have been held up for admiration we're really not sure. But today we are at least beginning to have an inkling. Jones simply doesn't know: he doesn't know the numbers, doesn't understand what the various economic numbers are telling us and him. This might seem like a minor example we're to show you but it's part and parcel of that, well, that ignorance in fact.

But consider the plight of the majority of Americans. We know that, six years into his presidency, poverty was still higher than before the financial system near-imploded. While child poverty has been alleviated for many Americans in the past five years, for African-Americans it has remained stubbornly constant.

The link for the child poverty is to this report. And that's not a measure of child poverty at all. It's a measure of how many children would be in poverty before the things the US government does to take people out of poverty.

To understand: there are now two measures of poverty in use in the US. The Official Poverty Measure, which is three times a basic but nutritious diet in the early 1960s upgraded for inflation since then, adjusted for family size. It is an absolute measure of poverty: it does not consider how lifestyles in general have been improving over that time. The other is the Supplemental Poverty Measure: this is very much more like our own measure, one of relative poverty, relative to the median income. The SPM also includes the various things that the US does to try and reduce poverty and under that measure child poverty rates are quite similar to what they are here in the UK.

However, the thing about the OPM, which is what Jones is considering, is that it does not include those poverty alleviation measures:

The income and poverty estimates shown in this report are based solely on money income before taxes and do not include the value of noncash benefits, such as those provided by the Supplemental Nutrition Assistance Program (SNAP), Medicare, Medicaid, public housing, or employer-provided fringe benefits.

That it doesn't include taxes also means that it does not include the EITC, the US equivalent of our tax credits. And pretty much all of America's poverty alleviation efforts come through either that EITC or the direct provision of goods and vouchers: all the things not considered in this estimation of poverty. They spend about $800 billion a year or so on them, they do alleviate a lot of poverty. In fact, the one thing that the US poverty alleviation system is very good at is the alleviation of child poverty. When we measure against that OPM, but add in those benefits in tax and in kind, child poverty in the US pretty much disappears in fact.

The error that Jones is making, as so many others do, is akin to looking at the British figures before all taxes and benefits. Something that is done here. Figure 1 tells us that (using our relative poverty measure of less than 60% of median household income) fully 40% of Britain is in poverty. Which is of course a nonsense. Because we cannot measure, usefully, poverty before the things we do to alleviate poverty.

We can also test this in another related manner. The Gini is not quite the same thing but it is indeed related. And if we look at the pre-tax and benefits inequality of various countries the US does not stand out in any remarkable manner. It is, before that redistribution, less unequal than France or Germany, only a little above Sweden or the UK.

Is the final outcome in the US more unequal? Yes, indeed it is. They do less redistribution than most European countries. However, to go around measuring poverty by the gross numbers for the US, before tax and redistribution, and then try to compare it to the net numbers, after tax and redistribution, for other countries is simply absurd. Or, of course, ignorant.

As Mark Twain pointed out, it's not what you don't know that's dangerous, it's what you do know but ain't that is. And thus we think we've found our solution to the conundrum of Owen Jones. He simply doesn't know the subject he's pontificating upon, just doesn't grasp the economic numbers. And thus his being led into the error of being a socialist.