MORE ECONOMIC INEQUALITY THAN EVER?

In early January, Oxfam, published An Economy For the 99%, a report centered on the need of rebuilding a global economy that benefits everyone, not just the privileged few . The report quickly produced hard-hitting headlines, most often spreading the report’s claim that the world’s 8 richest men own more wealth than the poorest half of the world’s population (see the New York Times or the Independent among many others).

The way Oxfam came up with this figure however seem somewhat questionable when one looks at the methodology used by Oxfam in their analysis. For the wealthiest, Oxfam indicates it used Forbes’ estimations on the wealth of the world’s richest billionaires . Forbes’ methodology uses meetings with the billionaires themselves, their employees, their competitors, lawyers and securities analysts whilst also keeping track on their deals (company deals or private deals such as property) to estimate their net worth .

Where it gets more interesting is their method for valuing the bottom 50%. Here they refer to the estimations that can be found in Credit Suisse’s Global Wealth Databook 2016. Credit Suisse estimates that the bottom 20% of the world population has an average individual wealth of minus one dollar . This implies that the bottom 20% is composed of net debtors on average. Computing the bottom 20% of the world’s population as net debtors is problematic as one can defer from it that anyone who is not a net debtor (for example your 8-year-old sister who owns a little pocket money and no debt) is richer than the bottom 20%. On the other hand, indebted students at some of the world’s top universities would be counted into the bottom 20% as they own less than they owe.

What becomes more problematic with Oxfam’s methodology is the bottom 20% is cancelling out the wealth of a significant part of the remainder of the bottom half. As the bottom 20% has an aggregate wealth that is negative, the next 30% have to compensate for this negative wealth before they can start catching up to the world’s 8 richest. In practice, this analysis tells us that the world’s 8 richest are richer than the bottom 50% yet poorer than the 30% that go from the 20% poorest up to 50%. This is not to say that wealth inequality is not at a high level nowadays, it is just to show that using financial wealth as a sole indicator of inequality makes for flashy headlines, but paints an oversimplified picture of the situation.

For further reading on the subject, we recommend our staff has picked out the following articles on: American wage stagnation & inequality and Inequality or middle Incomes: which matters more?

 

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CREDIT PHOTOS:

Oxfam