The global charity Oxfam is making its usual round of headlines with its annual report showing rising inequality. Most are focusing on the meme that the richest 1% own more than the rest of the world, the statistic that’s most startling to me is that just 80 people own more than the 3.5 billion people in the bottom half of the world. While the issue of income inequality is quite real, Oxfam’s numbers are not. Or, at least, they’re quite misleading.
Ryan Bourne of the London-based Institute of Economic Affairs warns “Beware Oxfam’s dodgy statistics on wealth inequality“:
Oxfam’s claim that the richest 1 per cent own 48 per cent of the world’s wealth (and will soon own more than half) rests on Credit Suisse data. This data is on net wealth, which throws up all sorts of weird findings when you try to add it up across large populations. That is because net wealth is calculated by adding up the value of assets and taking off debts.
To see this, look at the figure below from the Credit Suisse report. If we were to split up the data into deciles, this methodology would suggest China has no people in the bottom 10 per cent – the world’s poorest – with most Chinese in the top 50 per cent. North America on the other hand supposedly has around 8 per cent of the world’s poorest population – because significant numbers of people in the States are loaded up with debts of various kind, making their net wealth negative!
According to this methodology, the poorest 2 billion people in the world have a negative net wealth. Someone who has 50p but no assets or debts would be above the bottom 30 per cent of the world’s population. It doesn’t take an advanced mathematician to work out that adding up lots of negatives at the bottom to an overall wealth share figure for the bottom 99 per cent will of course make that figure much smaller than a gross wealth figure. Oxfam has then taken this bogus figure, looked at recent trends (which show the share of the top 1 per cent rising) and simply extrapolated into the future to get their headline (which seems a huge assumption given the potential QE unwinding).
Aggregating net wealth figures is largely meaningless and not the way most people think about poverty, or indeed the ‘rich’.
Salmon’s column from last April (“Stop adding up the wealth of the poor“), which introduces the chart above, elaborates on this point:
How is it that the US can have 7.5% of the bottom decile, when it has only 0.21% of the second decile and 0.16% of the third? The answer: we’re talking about net worth, here: assets minus debts. And if you add up the net worth of the world’s bottom decile, it comes to minus a trillion dollars. The poorest people in the world, using the Credit Suisse methodology, aren’t in India or Pakistan or Bangladesh: they’re people like Jérôme Kerviel, who has a negative net worth of something in the region of $6 billion.
America, of course, is the spiritual home of the overindebted — people underwater on their mortgages, recent graduates with massive student loans, renters carrying five-figure car loans and credit-card obligations, uninsured people who just got out of hospital, you name it. If you’re looking for people with significant negative net worth, in a way it’s surprising that only 7.5% of the world’s bottom 10% are in the US.
And as you start adding all those people up — the people who dominate the bottom 10% of the wealth rankings — their negative wealth only grows in magnitude: you get further and further away from zero.
The result is that if you take the bottom 30% of the world’s population — the poorest 2 billion people in the world — their total aggregate net worth is not low, it’s not zero, it’s negative. To the tune of roughly half a trillion dollars. My niece, who just got her first 50 cents in pocket money, has more money than the poorest 2 billion people in the world combined.
Or at least she does if you really consider Jérôme Kerviel to be the poorest person in the world, and much poorer than anybody trying to get by on less than a dollar a day. All of whom would happily change places with, say, Eike Batista, even if the latter, thanks to his debts, has a negative net worth in the hundreds of millions of dollars.
Now $1.7 trillion is undoubtedly a lot of money: there is an astonishing amount of wealth inequality in the world, and it’s shocking that just 67 people are worth that much. You could spread that money around the “bottom billion” and give them $1,700 each: enough to put them squarely in the fourth global wealth decile. But let’s look at just the top two-fifths of the 3.5 billion people referred to in the Oxfam stat. That’s 1.4 billion people; between them, they are worth $2.2 trillion. And they’re a subset of the 3.5 billion people who between them are worth $1.7 trillion.
The first lesson of this story is that it’s very easy, and rather misleading, to construct any statistic along the lines of “the top X people have the same amount of wealth as the bottom Y people”.
The second lesson of this story is broader: that when you’re talking about poor people, aggregating wealth is a silly and ultimately pointless exercise. Some poor people have modest savings; some poor people are deeply in debt; some poor people have nothing at all. (Also, some rich people are deeply in debt, which helps to throw off the statistics.) By lumping them all together and aggregating all those positive and negative ledger balances, you arrive at a number which is inevitably going to be low, but which is also largely meaningless. The Chinese tend to have large personal savings as a percentage of household income, but that doesn’t make them richer than Americans who have negative household savings — not in the way that we commonly understand the terms “rich” and “poor”. Wealth, and net worth, are useful metrics when you’re talking about the rich. But they tend to conceal more than they reveal when you’re talking about the poor.
Again, none of this is to say that disparity isn’t an important issue—it is!—but that we need to measure it in a thoughtful way.
I’m not sure whether it’s problematic that Charles and David Koch and Sheldon Adelson have $118 billion in wealth between them (coincidentally occupying spots #6, #7, and #8 on the Global 80). But I do worry that they have so much more influence over our elections and access to our policymakers than the bottom 300 million Americans combined.
I’m pretty sure there’s something wrong with people who’ve done nothing more significant than being related to the founder of Walmart occupying spots #9, #10, #13, and #14.
And, frankly, I’m probably more disturbed that I have no idea who probably 60 of the 80 people are. It’s one thing for Bill Gates (#1), Larry Ellison (#5), Larry Page (#17), Jeff Bezos (#18), Sergey Brin (#19), and even Mark Zuckerberg (#21) to be phenomenally rich; they at least made some major contribution to how people live their lives.
Regardless, though, aside from skimming some of their wealth to finance improvements in the infrastructure and funding welfare programs, the concentration of wealth at the very top really has very little to do with the plight of the poor. To the extent that they’re keeping money that would otherwise be going to people who work for them, that affects the middle class, not the poor.
Indeed, we’ve actually made significant strides in improving global hunger, infectious disease, access to drinking water, and other traditional problems of the poorest of the poor.
