I generally agree we do an “OK” job in Australia (mind you, that’s easy to say from a comfortable middle-class background), but I don’t think I can see I’m proud of the way Australia looks after its least fortunate.

I can tell you from experience it is pretty damn difficult, if not impossible, to design a system that:

* provides more than a subsistence level of income to people with none of their own;
* provides sufficient reward for work (work incentive) that those who are able to get a job and support themselves are willing to do so;
* adequately tops-up the income of people with insufficient money of their own, while maintaining incentives for people to increase their level of earnings over time;
* minimises the extent of free-riding to keep the average taxpayer happy; and
* doesn’t cost the earth.

No system is perfect, but I happen to think that overall we do an OK job in Australia and that the level of income inequality we have is not too bad. We’re not Scandinavia and I don’t think we ever will be.

In the end, there are many people in Australia (mostly age pensioners, granted) who manage to live quite comfortable lives on the age pension, so presumably the current level of that payment is ’sufficient’ for them. I simply don’t see how you could raise the level of income support payments to the level where no-one on them suffered any degree of financial hardship, because quite simply for a small proportion of people no amount would ever be enough. And don’t forget that we are talking pretty big numbers to increase payments by substantial amounts.

Someone very close to me would point out that one thing that makes social policy so difficult is the problem of ‘asymmetric information’. That is, only the beggar on the street really knows if he or she is there because of the misfortunes of life or because he or she chooses to live that way. So perhaps part of the reason that there are no beggars in small towns is that it is actually a benefit to beggars if the people they beg from don’t know them.

At the beginning of all this discussion, Andrew Leigh admitted that he didn’t really know what the ‘right’ (presumably optimal) level of inequality was. I don’t either. While, like Patrick, I can accept the idea that there is a point somewhere at which movement in either direction is likely to produce more harm than good, I have no idea how you would go about discovering it. But I also doubt whether it is a single immovable number, which can always be meaningfully compared across countries or across time.

I remain sceptical that Australia was a better, fairer, more equal country back in 1981 than it is now, even if the Gini was lower then. I suspect that if we had the data we might well find that the 1950s Gini was even lower than in 1981 and I’m even more sure that Australia was not a better place back in the 1950s.

So should I feel guilty as a white middle-class well-educated working woman for helping to create the more unequal society that we have now? From my point of view, Australia would not be improved if women like me were put back into the kitchen, but I have no doubt whatsoever that the Gini coefficient would go down. That is why I ask people what they would do in order to achieve the outcome that they view as better (though I notice I don’t often get too many concrete answers to those questions).

What I also know from many years of thinking about social policy is that there are no simple answers to any of this stuff. And that most policies that will do some good also have undesired and undesirable effects. I think Fred Argy’s vision of a society that puts quite a lot of effort into trying to redress inequality of opportunities has a lot going for it, but in the end the point of trying to empower people and increase their capabilities is so that they can take more responsibility for themselves. At some point you do have to leave it up to them to make what they can of their lives.

You keep hearing about how expensive London real estate is right? It’s just not Arabs buying there or the result of the banking belt. Lots of Europeans etc. take up residence in london to escape tax. The UK had or still has a deal going whereby you can earn income tax free provided it’s held offshore and you only pay tax on domestic UK income. Don’t know if that’s still going. Monaco is even more liberal and lets not even mention Switzerland or Luxembourg. Tax evasion is huge in Europe. Swiss banks apparently hold US$30 trillion dollars in tax avoided money which is not all saddam’s money..

That is an observably false statement. If it were true no able bodied person would live in the high-taxing European countries. Moreover if I remember some of the recent Pew study findings correctly the overwhelming majority of Westerners do not want to live in relatively low taxing America.

Mel, a lot of those people aren’t earning big dollars. Not many people with multi-million dollar salaries choose to live in European countries with high tax. Some might physically live there, but incorporate their companies elsewhere to evade tax, and even take up residency in places like Monaco for certain portions of the year.

Either way the effect is the same, their home country is not benefitting from their wealth because it is moved offshore.

And America isn’t even close to having the lowest tax of developed countries. There is no taxation pressure to move there, that’s for sure. In fact many Americans also emigrate to tax havens like the Bahamas and Monaco for the same reason.

I was really agreeing that it is almost impossible to work out the ‘best’ level of equality/inequality

Perhaps then we share a similar position on that front. I would probably suggest that being at or near either extreme of the Gini (1 or 0) is likely to be associated with severely dysfunctional societies. Where exactly we should sit comes back to fairness, justice, values and so on rather than any mathematical calculation that might seek to find an optimal position. You may have not suggested the latter, but economics as a discipline often heads off along similar dead ends.

Thanks so much for the backhanded complement. I don’t think I have anywhere advocated trying for a high degree of inequality - I was really agreeing that it is almost impossible to work out the ‘best’ level of equality/inequality and also arguing that perhaps in the end it is possible to put too much weight on inequality of (imperfectly measured) income.

Since you suggest that we drop the search for optimality, I guess that means that for you anything short of a Gini coefficient of 0 would have to be seen as failure. For me, I’m happy to stay living in the real world.

* a crude example is the way cashed up developers have managed to capture local councils- see this for example http://www.geelongadvertiser.com.au/article/2007/05/22/3934_opinion.html

* a more subtle example is the $5,000 a seat meet-the-premier fundraisers held by our political parties- see here for example http://www.democracywatch.com.au/newspaper.html

I’m not arguing that no-one should be be rich, but I do question stratospheric discrepancies in wealth that can’t possibly reflect the differential value of individual contributions to the community, let alone be socially just.

Perhaps I’m just an old fogey, but as I get older I’m less and less convinced that inequality (especially when it is as imperfectly measured as income inequality) is in itself a bad thing.

What a remarkably brave and revealing comment. Inequality (whether it relate to income or individual/household wealth) means a power imbalance. Powerful people do not always act charitably towards the vulnerable (slight understatement there). To accept a high degree of inequality in exchange for some mindless goal of exponential increase in consumption seems utterly mad. It has already been demonstrated here that most enviable nations appear to have low gini co-efficients. In econo-speak there are sure to be large externalities that favour more equal societal arrangements and lower rates of civil strife.

Some here have suggested that we might be able to identify an “optimal” level of in/equality. This is in itself an absurdity. There is no optimal level of inequality any more than there is an optimal level of shutter speed on your DSLR. It comes down to values, preferences, and deeply held philosophical beliefs. Drop the search for optimality.

As for people that “simply aren’t interested in earning” - I’ve never been convinced this would be a problem you could solve by making it harder for such people to draw on the public purse. It also struck me that there were far more people with genuine need for assistance being hurt by lack of government support than there were dole bludgers intent on living their ideal lifestyle without having to bother doing useful work.