Thursday, 25 March 2010

More from Middle England

Chris Dillow has been cataloguing examples of the "Middle England" error. Often committed by journalists, this consists of mistaking a rich person's unusually high income for normality. Chris Blackhurst, the City Editor of the Evening Standard has another egregious example today, in a bitter complaint about the rise in stamp duty:
Alistair taking from the rich...and I'm the rich. [LC: this is meant to be sarcastic]
There are a lot of people like me...185,000 homes in England and Wales with seven-figure price tags.
That is not "a lot". There are 25 million homes in the UK, of which about 18 million are owner-occupied. Therefore just one per cent of homeowners are affected by this policy. Is it unreasonable to describe the top one per cent of homeowners as rich?

Here's Blackhurst's justification for why he isn't rich:
The reality today is that £1 million does not buy you a palace, not in the South-East.
But it's still a million pounds! You are still rich!

He is following an odd policy: judging wealth by the size of his house, instead of its value. The thing is - he has chosen to have his medium-sized house in one of the most desirable parts of the country, an option not available to most people.

If that's his choice it's fine by me; but by doing so, he spends more of his wealth on property than he otherwise would. As soon as he decides to sell up and move, he'll have more cash than most people ever accumulate. Indeed he could probably quit his job now and retire to Goa, or Runcorn. He is almost certainly (depending on the size of his mortgage I guess) among the top one per cent in wealth and income in the UK.

Chris isn't alone (though as City editor of a serious newspaper, he has no excuse). Nearly everybody overestimates other people's wealth. In a recent psychology experiment described by Gordon Brown (not that one, this one) at Warwick University, subjects were asked how much they'd need to earn to be in the top percentile in the UK. Have a guess if you want before scrolling down.

The average response in the experiment: £350,000. Scroll down a bit more to find out the truth.

The real figure: £98,000 [note: this depends on whether you include non-earners and very low earners - a range of more detailed figures at this link]. So anyone earning £100k is in the top one percent, and no more than one earner in two hundred will be affected by the new 50% tax band on £150k incomes.

This discussion shows some similar misapprehensions in the US: "top 1% - warren buffett, bill gates". It's quite revealing to read the answers on that page - they show very clearly the origin of this mistake. It's based simply on availability and salience. If you ask someone to think of a range of people with different incomes, they'll probably imagine one homeless person, a couple of average people, themselves, and Bill Gates. With a sample size like that, it's quite natural to think that Bill represents a huge class of rich people. But in fact, the only reason you've heard of him at all is because he was the richest man in the world.

I heard yesterday of an analysis (can't find the reference, sorry) of how much money TV characters would need to earn to sustain the lifestyles they're portrayed as having. Turns out the median figure is something like $1 million. But viewers assume those people have normal lives.

Such reasons are why well-off professionals in London forget how good they have it - and how hard it is for many other people living not too far away.

1 comment:

Anonymous said...

Curious. I guessed £100k. And I am not British. Maybe that helped. ;)