[Oldmanmatt]

Not had time to do more than skim, but this looks interesting:
https://www.resolutionfoundation.org/app/uploads/2020/07/living-standards-audit.pdf

[mrjonathanr]

This nugget stood out from an article in today’s Guardian by Paul Kissack,  chief exec of the Joseph Rowntree Foundation

Rather than strengthen the support available, he {Sunak} chose to cut benefits in real terms, leaving households in poverty £445 out of pocket for the year ahead; 600,000 more people will be pulled into poverty by this decision. Around a quarter of them are children.

[petejh]

Interesting thesis Pete. What you seem to be saying is we should compare ourselves with people who lived in 1924, even though this is quite hard, but we shouldn't compare ourselves with people who live in 2022, even though this is painfully easy.

Well done demolishing that little strawman you just built Duncan. No, hopefully that isn't what I appear to be saying. It's pretty clear the comparison is being made between someone in poverty today versus the richest man in the world in 1924. And the point raised is a philosophical one to do with 'enough', peer comparisons, and relative wealth. It's an easy topic to get outraged about and I wouldn't expect anything else here.

An interesting way to think about human inequality is to look at a human life as if it were a unit of wealth subject to the pressures of compounding growth. Then apply the maths of 'sequence of returns risk' to a human lifetime. Sequence of returns risk is the maths of how identical fixed withdrawals from two identical initial fixed pots of wealth, in a fluctuating price environment, will trace very different paths through time depending on the market price environment during the crucial early stages of withdrawal.
So 1 unit, at the same overall average growth per annum over, say 20 years, will finish at very different levels from 0 to + a lot, dependant on the unit price during early years of withdrawal.

It seems to me that it works the same for people, as can be seen in the way early life advantages or disadvantages compound over time. Lives that start off at a slight disadvantage compound into a much larger disadvantage, while lives that start with a small advantage compound into a much larger advantage. Same for pensions, athletic achievement, and no doubt lots of other environments where there's competitive pressures and where early small gains or losses have enough time to compound.

When people talk about equality I wonder to myself what they really mean. Equality of outcome? Zero chance of that, you may as well campaign for moons on sticks.
Equality of opportunity - I'm all in favour of that especially in three areas - education, housing and health. Not much else matters really. But health is tricky because it's hard to stop medical professionals having an incentive to provide a market to wealthy people. Housing is tricky but more solvable than health - in world king mode I'd immediately cap home ownership to two per person within the UK (to cries of outrage from poor villagers in Spain and France no doubt). All that student accom owned by the middle-class would be owned by either the state or the uni. Private investors (mostly ex-students funnily enough, easy to spot the opportunity when you've been the opportunity earlier in life) - if they really were as keen on making money from providing student accom as the last 30 years would suggest they are, could invest as private finance into the uni or government housing system for a fixed rate of annual return. Houses inherited from parents, if they took you over the two-house cap, would get sold at a much lower IHT rate than the current system. Education should be simple but isn't - ban paid-for schools tomorrow seems a simple policy that would level the field. Except the outcome would still be unequal because the market for paid-for tutors would explode.

Cost of housing seems the simplest to make more equal in the UK. Unfortunately a great many of the people who matter to politicians most - inc. many of the UKB readership - don't 'really' want it to be equal if housing being more equal means bringing the level of affordability of housing down a few notches, instead of bringing the poorest people up a few notches so that they're able to afford ultra expensive housing-to-income ratios. Because they have their wealth in it. A large proportion of people, as soon as they get a bit of wealth, do what unimaginative middle class people do which is buy more properties than they'll ever live in as investments providing yield and capital growth to see them through their retirement years. In that respect I agree with the Chinese communist party's *motto of 'houses are for living in not speculating'.


*Even if they don't actually mean it for all the elites, just the wrong sort of elites.



One illustration of sequence of return risk. Same start points - could think of 'start point' as inherent genetic ability, identical 'withdrawals' - could think of withdrawals as effort made in life, 3 different environmental pressures - market pricing in this case but could think of as 'competition from peers'. Very different end points largely influenced by conditions during the early years:

[petejh]

For anyone who wants to get into the weeds of sequence risk.
https://earlyretirementnow.com/2017/05/24/the-ultimate-guide-to-safe-withdrawal-rates-part-15-sequence-of-return-risk-part2/

[teestub]

If you’re honest with yourself I don’t think you would trade Rockefeller’s $700 billion in the early 1900s for an average life in 2022.

This is the bit I think I’m missing the point of, or disagree with: are we meant to choose not being mega rich personally, because we should be unselfish and think about how much better off the average person is today?

[danm]

Forget about whether it's selfish or not, once you have enough to be comfortable and secure anything more will be very unlikely to make you happier, whereas if you are in poverty, every little bit which moves you closer to the above has incredible value. Everyone (not just the poorest) would actually be better off with less inequality and a decent standard of living - just see which nations come in the top 5 for quality of life each year and then check their metrics.

[battery]

When people talk about equality I wonder to myself what they really mean. Equality of outcome? Zero chance of that, you may as well campaign for moons on sticks.
Equality of opportunity - I'm all in favour of that

So just because something is difficult and complicated we shouldn't even try??

I don't know how to insert a picture but this explains the issue with 'equality of opportunities' perfectly.

https://www.reddit.com/r/coolguides/comments/o3ivsg/equality_equity_and_justice_explained_better/

[mrjonathanr]

Equality for all is a strawman on stilts. When people -sane people, at least- discuss inequality, as battery alludes, the issue is to remove systemic barriers by reasonable adjustments and to stop people thieving their way to extreme privilege. Free school meals would be an example of the former, getting your mates to award £76m profit contracts for unusable kit the latter.

[petejh]

Equality for all is a strawman on stilts. When people -sane people, at least- discuss inequality, as battery alludes, the issue is to remove systemic barriers by reasonable adjustments and to stop people thieving their way to extreme privilege. Free school meals would be an example of the former, getting your mates to award £76m profit contracts for unusable kit the latter.

Actually that's what the link Battery posted *is* alluding to.   Equality for all to be allowed to see the same game, currently blocked by the barrier. Which is what I said is unachievable and that you're saying is a strawman on stilts.
Much depends on your definition of what 'watching the game' represents in that simplistic picture I suppose - if you're talking about free school meals so that kids get to eat similar quantity and quality of calories growing up, then yes I fully agree this is both desirable and achievable. If you're talking about all kids getting access to all the same 'things' and experiences then this might be desirable but just obviously isn't achievable nor would it ever be in a capitalist, or any, economy unfortunately (literally..). 

There's obviously a grey area that not everyone agrees on where necessary, desirable, essential, etc. are open to debate. 

Putting up an appealing simple picture is a good way to give people a disabling belief that life could ever be truly fair and equitable for all. This hasn't ever been true, and the likelihood of it ever being true in the future seems so small as to be not worth considering imo.

[seankenny]

When people talk about equality I wonder to myself what they really mean. Equality of outcome? Zero chance of that, you may as well campaign for moons on sticks.
Equality of opportunity - I'm all in favour of that

Very few people who study this write about equality. Instead they research inequality, something which is present in all societies and at all times. It’s usually split into income inequality and wealth inequality, the later is very hard to measure and our data on wealth distributions doesn’t go that far back. But sometimes consumption gets used too.

Unlike the vagueness around equality, we have pretty good ways of quantifying inequality. Basically either a Gini coefficient (measures the distance from perfect equality, ie 1st decile has 10% of income, 2nd decile 10% etc), or a ratio of income by deciles, usually 90:10 or 50:10.

I doubt this answers the question you asked, but it’s the usual framework used for thinking about these questions! At least from a quantitative point of view, other approaches are available…

[CapitalistPunter]

Equality of outcome is not just impossible, it's undesirable. Hierarchies are inevitable, the best you can do is aim to make the hierarchy based on something that is beneficial to society.

[seankenny]

I wasn’t entirely sure what point Pete was making with this analogy… initial endowments matter? Skills compound over time but the return to skill changes? I mean, if so, then yes. I made the same point re returns to skill in one my posts above. That said, these things are all very reasonable in theory but examining them econometrically isn’t always easy.

[petejh]

Ha! It occurred to me this morning. I've spent the last twelve months educating myself on sequence risk along with a load of other early retirement tools. Yeah probably wasted, but it seemed such a fitting model for thinking about the topic of lives which begin at a 'neutral' start point and which develop along diverging paths where each event has the ability to alter future success and it all compounds over time to wildly differing outcomes.

Sean - best I can suggest, if you want to understand sequence risk, is to take a read of ERN's site. Also Moneyvator. It's a seemingly simple concept, but fiendishly difficult to mitigate - aka 'the most difficult problem in finance'. I think you might find it an interesting way to think about inequality of outcome.


(Wondering now what withdrawal rate you've suggested for that settlement Habrich!)

[seankenny]

Thanks - I have already skim read the intro page to get an idea of how it worked, thought it was a neat idea, to the point of considering replicating their method even tho I am definitely not a finance guy.

Saying that skills etc compound is almost certainly true but how big a factor is it? The question of how education affects later income features in every econometrics text book because it is a simple and obvious question that turns out to be very hard to answer.

Inequality is also driven by more macro factors such as tax systems, social mobility, aggregate demand, etc. The drivers of in-country inequality are different to the drivers of between-country inequality, the later is even hard to quantify. “How much richer than Europe is America?” is also quite a hard question to answer, even tho it’s obvious that many Americans are richer than most Europeans, and the richest really are much richer. Some of that may even boil down to individual preferences and appetites for risk, in much the same way as there’s no one answer to the question of would you rather be ordinary early 21st century resident or Rockerfeller, or even Alexander the Great.

[petejh]

Just spit balling now, but to use sequence of returns risk in relation to a person's life chances, I'd think of it in terms not of what positive skills/advantages compound over a lifetime. I'd think of it in terms of what setbacks/disadvantages occur early in a life. Because sequence risk is especially concerned with what impact setbacks have on long-term growth, and when/in what order along a timeline a disadvantage, setback or series of setbacks happen, more than the scale of the setback although scale isn't irrelevant. The earlier a setback the greater the compounding effect of those unrealised gains, versus an 'average'.

Just doing 'OK' compared to peers, with the occasional setback a bit later in life = you're probably going to do OK overall, i.e. not inequality.

But if a person is born (in other words begins the sequence) in some slightly disadvantaged circumstance compared to the average, and then in the early years experiences some setback, then using the sequence of returns model it would be difficult to ever fully recover from that compared to an average person, let alone someone fortunate.

[petejh]

Was literally just reading ERN's page where he's modelling exactly what you're doing - modelling which variables have most predictive power in a high inflation environment for a CAPE-adjusted SWR 75/25 stocks/bonds. He's done a regression model on 8 variables and found that using the 10-year forward CPI gives the greatest predictive power (coming back again to sequence risk in the first 5-10 years!), versus using 1,5,30 forward CPI, 10-year bond, 2-year bond or short-term trailing inflation rate.
Interesting he found that direction of inflation is more predictive than actual level of inflation, up to a point around 8%.

Here:  https://earlyretirementnow.com/2022/02/28/retirement-in-a-high-inflation-environment-swr-series-part-51/

Wish I had the stats knowledge to follow his calcs, but I understand the concept. I'm currently using CAPE-adjusted SWR for calculating my own withdrawal rate.

Apols off topic.

[seankenny]

Pete the regressions he’s doing here are fairly standard. Get yourself a copy of Stock and Watson’s Introduction to Econometrics and download R and you could teach yourself enough to understand what’s going on here quite quickly. It only used a very little calculus iirc and if you didn’t want to take those bits on trust, you could learn that easily too. I suspect you’d probably enjoy the whole process.

[TobyD]

I wonder if there's been a time when the UK had a worse government,  or whether the proximity makes it seem so, and they'll look mediocre in retrospect?

Theres a serious war in Europe,  an ongoing pandemic,  a crisis in energy policy,  inequality,  not to mention climate change.  The government has all but abandoned net zero (not mentioned at all in yesterday's energy policy paper) and the PM is occupied desperately trying to keep his job.

Ministers are pissing about trying to outsource refugees to Africa,  and dismantling media organisations.  The main hope is that they lack the competence to actually pass any of this bullshit into law.

Surely it hasn't always been this way?

[galpinos]

Don't panic though Toby as the Treasury is focusing on minting it's own NFTs......

[BrutusTheBear]

Nevermind at least the 'opposition' isn't driving itself towards bankruptcy. 

[TobyD]

Nevermind at least the 'opposition' isn't driving itself towards bankruptcy. 

In legal costs due to the widespread antisemitism of the Corbyn years. I think the opposition is doing as good a job as it can given the large Conservative majority and events of the past 2½ years. They've gone a long way towards making themselves a credible option as a government.

[TobyD]

Don't panic though Toby as the Treasury is focusing on minting it's own NFTs......

Incredibly high environmental costs incurred. Well done them.

[Fultonius]

Don't panic though Toby as the Treasury is focusing on minting it's own NFTs......

Incredibly high environmental costs incurred. Well done them.

Well, they could go down the proof of stake approach (Ethereum 2.0 etc.) which will have a pretty minimal env. impact. But this is the tories, so it'll probably be powered by Russian gas or something...

[TobyD]

Don't panic though Toby as the Treasury is focusing on minting it's own NFTs......

Incredibly high environmental costs incurred. Well done them.

Well, they could go down the proof of stake approach (Ethereum 2.0 etc.) which will have a pretty minimal env. impact. But this is the tories, so it'll probably be powered by Russian gas or something...

Just like penalising restaurants with calorie labelling,  when they could go after the sugar industry,  only they won't,  as Tate and Lyle are Conservative party donors.

[BrutusTheBear]

Nevermind at least the 'opposition' isn't driving itself towards bankruptcy. 

In legal costs due to the widespread antisemitism of the Corbyn years. I think the opposition is doing as good a job as it can given the large Conservative majority and events of the past 2½ years. They've gone a long way towards making themselves a credible option as a government.

  Interesting take, however not factually correct, the increase in legal fees is circa £1.8million a year leaving around £18 million in losses unaccounted for by this explanation?!1  Income has gone right down, that's due to
a)unions reducing funding because of disagreements with the direction of leadership 
b) a lack of and inability to attract large (£10k+) donors from the wealthy/ corporate. 
c) circa 180k (could be more now) members leaving the Labour Party (taking with them their subscription fees and fundraising capabilities). (That's worth around £6million without taking into account the funds those individuals raised themselves, that's your legal fees covered)
d) prior to Starmer Labour was raising incredible amounts through campaigning and seeking small individual donations (these funding drives seem to have stopped/ possibly on the conceited assumption that big business would flock to fund the LP - well that's not happening).
I would suggest that harping on about Corbyn is getting as tired as the Conservative government going on about how Labour lost all that money 14 years ago.  The focus of this leadership team and those around them should be on getting their shit together and hammering this government on behalf of working people. The CWU has withdrawn all funding stating that Starmer's leadership "is failing to connect with working class communities'.  At present they are on course for Bankruptcy  and unable to repay £millions in loans they have taken.  The leadership were even briefing that bankruptcy could be a good thing, imagine how hammered they would get if this happens, can't even run their own finances let alone the whole countries FFS.  Whilst publicly campaigning against fire & rehire and for pay increases to keep up with inflation the LP has made a 3rd of it's employees redundant and then recruited staff on insecure temporary contracts and on worse T&Cs.  They have given their employees a 2% pay rise FFS!  They have recently attempted to pay off employees that are alleged victims of sexual harassment and get them to sign Non Disclosure Agreements, it's insanity. These are supposed to be the 'forensic', 'professional', competent, 'grown ups' in charge.. Omnishambles.  b b b b b b b but Corbyn, just excuses.