Tuesday, September 30, 2008

So, how does this wealth creation lark go then?

Via Sadie, I found an interesting post by Chris Dillow, who makes a very good critique of a post by Fraser Nelson that is a complete pile of tosh.

What Fraser is saying that these rich people are jolly good because they contribute a gigantic proportion of the total tax take and that this therefore means that Nigel Lawson was the most redistributive chancellor ever. He then talks about the good old Laffer curve and how reducing taxes on the rich makes them pay more tax.

Chris basically points out that the rich paying a greater proportion of the total tax take can simply be a sign that wealth distribution is very unequal.

Of course, at this point the right generally like to start talking about wealth creation and how this inequality creates wealth and just means a much bigger pie. So, to counter this I would like people to refer to the following graph (taken from this report):

Lawson's tenure is marked in blue, I've added marks in red to in order to mark the figures I'm about to refer to. I'm using the wider context of 1960 - 1980 and 1980 - 2000, this seems fair enough since Lawsons tenure began early on in the second period.

So, let's compare GDP per capita for the wealth creating 20 years after 1980 with the more equal but supposedly less productive 20 years before the 80's. In 1960 the figure (in 1995 £'s) is £6,000 in 1980 the figure is £9,000 meaning a 50% increase in wealth in this 20 year period. By 2000 the figure is at £13,500 which is of course a 50% increase on 1980.

Obviously, economic growth between 1960 and 1980 was about the same as growth between 1980 and 2000, the whole idea that these tax cuts for the rich lead to "wealth creation" is a myth. The rich have taken a larger share of the country's wealth at the expense of everyone else.


Miller 2.0 said...

'Wealth Creation' itself is a highly politicised term with its own philosophical controversies in political economy...

Andreas Paterson said...

I agree completely Tom, no matter how you look at it the right's view of "wealth creation" is seriously messed up. It fails to acknowledge both the true source of this wealth and the fact that it hasn't actually created any wealth.