Wednesday, January 16, 2008

What the Huck! (Owen McShane Edition)

Recently, writing about the farcical level of inaccuracy in a Garth George 'column' Gareth Renowden pondered whether the Herald's fact-checker was on leave. Self professed scientist Owen McShane adds weight to this speculation with a Huckabeean display of innumeracy in his most recent column.

The target of which was --- wait for it --- John Minto and his heretical views on property rights. For what it's worth, my own views on the role of property rights in economic development may, quite plausibly, be closer to McShane's than Minto's. But if you are going to opine in New Zealand's paper of record on property rights and poverty it helps if you have a clue.

And Owen McShane quite clearly doesn't. (I'm being nice here, it's also possible that he does and that he is simply being dishonest)

The catalyst for McShane is Minto's claim that:

The US has the highest levels of poverty in the Western world (more than 30 million) despite one of the highest per capita incomes in the world. Why would this be?
...and so McShane races to the US's defence:
Minto tells us that such Americans can only create poverty because "the US has the highest levels of poverty in the Western World (more than 30 million)" and asks, "Why would this be?"

Well, the answer is simple. The United States Official Poverty Rate (the OPR) is based on calculations that are available from 1959 onwards. For the total population of the US, this rate declined by nearly half over this period, from 22.4 per cent in 1959 to 12.7 per cent in 2004. It seems Americans do know something about reducing poverty.

Also, millions of Americans can be declared to be in poverty because the UN poverty index is based on the percentage of the population with disposable incomes of less than 50 per cent of the median.
Astute readers will notice a subtle segue here. McShane starts by talking about US official poverty stats before moving on to those compiled by the UN, which he then goes on to criticise because they are based on a relative poverty line (50% of median income). Now there's actually an interesting debate to be had about the respective merits of absolute and relative poverty lines, but McShance sure isn't interested, and I don't have the time to go over it in detail so it will have to wait for another post. The important point here though is that Minto's number of over 30 million isn't based on any UN estimate - it's based on the US's own official poverty stats [large PDF file]. And the United State's poverty line is not a relative line in any sense. It is absolute, based on inflation adjusted basket of basic needs.

McShane, who one bets has never experienced anything like poverty at any point in his life then adds that:
American families not only have hot and cold clean running water, flush toilets and electricity but typically have one or more cars, at least one television, several telephones and even own their own homes.
So, what he essentially saying here is that - in the richest country on Earth (and one which gets rather cold in winter I hear) - you may well not be poor, even if you don't have hot water, a flush toilet, and electricity. And, if he considers a car a luxury, he should try getting round without one in your typical public transport deprived US city.

Next up is a true clanger:
The UN test means that when the median American household income reaches US$1 million a year, a family living on US$499,000 a year will still be deemed to be living "in poverty". Using the New Zealand index, they could be earning $600,000 a year and still be "in poverty".

Which is just factually false. New Zealand (to our shame) doesn't have official poverty lines. Rather 'low income' lines are used, based on 50% and 60% of the median income in 1998 (adjusted for inflation). This may seem like a relative poverty line, but it is not. God only knows why MSD use percentages to reflect what is actually an absolute figure (based on a dollar value in 1998 thereafter adjusted for inflation) but the fact of the matter is that, assuming the methodology stays the same, if - 20 years from now - median income has increased to $US1M a year, NZ's the low income lines will not have gone up accordingly - they will have been adjusted for inflation, that is all. (Reference: here). Also, these 50% and 60% figures aren't entirely arbitrary; research by Charles Waldergrave and others came up with a needs based poverty line for New Zealanders that was roughly the same as the 60% figure.

This out of the way things just gets worse:

I am not at all sure why Minto assumes that Americans are experts on creating poverty rather than wealth. Some poverty indices have truly bizarre outcomes - especially those which focus on where families sit relative to average income. Minto bewails the fact that the very rich in the US have very high incomes.

One way to reduce poverty might be to persuade them to up stakes and take their wealth to other less fortunate nations.

However, if Bill Gates decided to migrate to a poor country like New Zealand, his settlement here could increase the number of New Zealand families officially living in poverty because his vast income would considerably increase the average household income. And hence throw hundreds, if not thousands, more families, and even their children, into poverty.

Which would only be true if New Zealand, or any country for that matter, used a poverty line based on mean rather than median incomes. (Otherwise Bill Gates's big move would only shift the poverty line ever so slightly). For what it's worth, I have heard about poverty lines based on mean incomes but I've never seen them used in practice and none of the poverty lines that McShane mentions in his column are based on means. So why does he start talking about them now? Either because he doesn't know the difference between means and medians or, more likely, because he is being utterly slippery to try and obfuscate the fact that the United States does, indeed, have a serious poverty issue.

Why he felt the need to write this tosh I don't know, but it's hardly to the Herald's credit that it chose to publish it.

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