Be proud of wealth inequality
On Tuesday, the World Institute for Development Economics Research of the United Nations University (UNU-WIDER) released a study called “The World Distribution of Household Wealth”.
The study’s headline, from their press release, begins “the richest 2% of adults in the world own more than half of global household wealth”. The next two paragraphs of the press release read as follows:
The most comprehensive study of personal wealth ever undertaken also reports that the richest 1% of adults alone owned 40% of global assets in the year 2000, and that the richest 10% of adults accounted for 85% of the world total. In contrast, the bottom half of the world adult population owned barely 1% of global wealth.
The research finds that assets of $2,200 per adult placed a household in the top half of the world wealth distribution in the year 2000. To be among the richest 10% of adults in the world required $61,000 in assets, and more than $500,000 was needed to belong to the richest 1%, a group which — with 37 million members worldwide — is far from an exclusive club.”
Much further down in the document is a discussion of the “Gini value”, a measure of income or wealth inequality, in which the authors say “The study estimates that the global wealth Gini for adults is 89%. The same degree of inequality would be obtained if one person in a group of ten takes 99% of the total pie and the other nine share the remaining 1%.”
Although researchers at institutions like the UN have done a much better than usual job of avoiding obvious political bias in this study, the same can not be said for the media. A typical example comes from Reuters (a story which was picked up on web sites from the UK to Australia), in which the reporter’s story line goes roughly like this:
• 2% of adults own more than half of global wealth
• wealth distribution is “even more skewed” than income
• the “pie share” story, i.e. one person in a group of 10 having a dollar and the other 9 having $99 dollars
• Then she picks up this quote: “The super-rich are even more grotesquely rich than 50 years ago.”
As if her bias against wealth were not already obvious, she then takes the information showing that it is not hard (by western standards) to be in the top percentiles of wealth by doubling the $500,000 threshold in the press release and saying “a couple in 2000 needed $1 million in capital to number among the richest 37 million people in the world, the top 1 percent.” (And of course she leaves out what even the study’s authors noted: that is “far from an exclusive club.”
It is only two-thirds of the way through the Reuters article that the writer points out that wealth of $2,200 gets you into the top half of the world’s population. The only good thing I can say about the Reuters reporter is that at least she is not the India’s Economic Times editor who branded those people in the top percentiles of the world’s asset holders as “the filthy rich”.
What writers like the Reuters reporter are doing (intentionally, I believe) is trying to get readers to infer massive wealth differentials within their own countries whereas this study is about the differences among countries.
But let’s dig into this study a little more.
The United States has 25% of the world’s wealthiest 10%. Japan has 20%. Germany, Italy, the UK, and France have 8%, 7%, 6%, and 4% respectively.
In terms of population as a percentage of world population, here are the numbers:
USA 4.57%, Japan 1.95%, Germany 1.26%, Italy 0.89%, and the UK and France both at 0.93%.
In other words, when asking what percent of these industrialized nations’ populations are in the top 10% of wealth, the results look like this:
USA 18%, Japan 10%, Germany 16%, Italy 13%, the UK 16%, and France 23%.
(Keep in mind that the wealth statistics are for adults only and the population numbers include children, so differences in reproduction and immigration in years preceding the study data make the relative values above slightly different given that Japan has a low rate of reproduction, the US a fairly high rate, and most of western Europe in between.)
[Because of exchange rate issues, the Japan number is smaller than I would have expected given the study’s finding that “Average wealth amounted to $144,000 per person in the USA in year 2000, and $181,000 in Japan.” In any case, the percentage of Americans who are in the top 10% is in-line with western Europeans.]
Let me be clear about my opinion, in case it isn’t obvious from my writing: Being in the top 1% or top 10% of the world’s wealthiest people is not something to be ashamed of. The fact that western democracies in general have higher levels of wealth than third-world dictatorships is something that should be celebrated. It means we are doing something right.
It is not the rich who are “filthy”. It is the governments of those countries who are at the bottom of this survey’s results…places like the Congo and Ethiopia…who embezzle not only their country’s economic product, however meager, but also a huge percentage of aid given by the UN and the West. There are many reasons why a country might be poor, but in my view the single biggest reason left in the 21st century is bad government, and the refusal of the West to realize that we simply prolong the poverty and suffering of the world’s poorest by continuing to give aid the way we primarily do, i.e. by government (or NGO) to government transfer.
The study notes that net assets of $61,000 get one into the richest 10% of the world’s adults. While the relationship between disposable income and net worth varies with government policies such as taxation and welfare benefits, a net worth of $61,000 seems to correlate roughly to disposable income of $12,000. Assuming that a “household” includes two adults, the most recent US Census Department statistics show that roughly 82% of American households are likely to be in the richest 10% of the world by wealth. (Given that many households have fewer than 2 adults, the real number is likely to be higher.) I repeat, the fact that even poor Americans are rich by world standards is a badge of honor we should wear proudly.
The BBC news story on the study properly notes that “the report is not about policy recommendations” although one of the authors does stress the “importance of enhancing banking systems”.
That is the real import of this study: What the West is doing, in terms of property rights, government, and stable private and public institutions, is making us wealthy. Instead of feeling guilty about it as the mainstream media would like us to, what we need to take away from this report is that by enabling corrupt governments though direct-to-government aid we are keeping poor people poor. To the extent that one considers income or wealth inequality a problem (which I certainly don’t in America but do in third world kleptocracies) the answer is not to just send them more of our money. They are not poor because we are rich.
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