Beware the spirit level

Matt Nolan at TVHE warns:

I see that the Spirit Level authors are in town, and as a result there was a recent Herald article took aim at income inequality in New Zealand, relying strongly on the book ‘The Spirit Level’.  A conversation about the inequalities society believes are fair, or at least justifiable, is a good thing.  However, the Spirit Level’s claims that simply targeting measures like the Gini coefficient will make everyone better off is a misleading, and dangerous, place to start this conversation.

 In their initial book Wilkinson and Pikett make the claim that the relative distance between incomes (which they in turn call inequality) in a country/region causes a variety of social ills (worse health outcomes, higher crime rates, etc).  They stated that this implies everyone, even those with higher tax burdens, would be better off if we increased taxes and transfers and lowered income inequality.

When I initially reviewed the book I found that their claims were significantly oversold, the book was filled with inconsistencies, and their policy conclusions were unjustified.  This disappointed me, not because I think we should ignore inequality, but because I believe that asking why income inequality has changed and who has been hurt is an incredibly important question – one that has not been given enough attention.

It turns out that there are a number of left-leaning economists found the claims oversold.  For example, in the Oxford Economic Handbook of Economic Inequality, three authors (Leigh, Jencks, and Smeeding) point out that a relationship between health outcomes and inequality does not seem to exist.

The Spirit Level uses cherry picked data to reach the conclusions they wanted.

An example with life expectancy is in this blog post.

Peter Saunders has also debunked much of the book, which I covered here. He also shows how you can find stats that argue the opposite:

Saunders constructs a social misery index showing that social misery is higher (r^2-0.39, p<0.001) is countries with greater income equality by focusing on racist bigotry, suicide rate, divorce rate, reverse fertility rate, alcohol consumption and HIV infection rate.

The questions that media should be asking the authors is why did they leave out countries like Hong Kong, when their inclusion would have changed their conclusions.