Fixing Global Inequality, or Not: Eleven Steps, Not All Easy

Writing about web page http://www.bbc.co.uk/news/business-35339475

I have many cousins of various degrees, all lovely people who care about the state of the world. Cousin #1 recently posted on facebook:

62 vs 3.5 billion. The single worst statistic I've ever heard. (18 January at 10:51)

His comment was prompted by Oxfam’s gloss on the annual Credit Suisse report on the global distribution of wealth, as featured by the BBC: “The world's richest 62 people now own as much wealth as the poorest half.”

Cousin #2 responded:

Open mouthed. (18 January at 19:12)

I butted in:

Some simple (not all easy) ways to improve global inequality as measured by Oxfam/Credit Suisse (a) Bring down property values by reforming western housing markets, because rising property values account for between two thirds and 100% of the rising inequality found by Thomas Piketty (b) Bring down Western bond and equity values by ending quantitative easing in the West (c) Bring down the value of dollar assets relative to assets denominated in other currencies by having more quantitative easing, but only in the US (d) Measure wealth in different countries by converting currencies at purchasing power, not market exchange rates, because currency values are determined by competitive in markets for internationally traded goods whereas many goods (and especially services) are not traded, and their prices are many times lower in poorer countries, e.g. compare getting a haircut in Accra and Manhattan (e) Don't use a stupid measure of wealth that places many middle-class Westerners with mortgage debt among the poorest people in the world (i.e. ignoring the fact that part of being rich is being able to borrow) (f) Measure other aspects of well being too, like morbidity and mortality at all ages, in which the world has been steadily improving for decades AND getting more equal (g) Remember that some poverty and wealth are temporary (during adult life most Americans will BOTH hit the top 10 percent by income AND spend time at the bottom 20 percent); we should worry most about chronic poverty, which also exists (h) Be patient because global income inequality has been steadily diminishing for decades and will continue to do so unless someone does something really stupid (j) Don't do stupid stuff, which ranges from violence to utopian dreaming, e.g. that if you take away all Donald Trump's money and give it to Ghana then Ghana's poor will benefit commensurately, because they won't (k) Remember that charities thrive on making the news look bad (m) Cheer up, because not all news is bad; the world is a better place than we think. (20 January at 10:37)

Cousin #3 came back:

I didn't fully understand your point about not using a "measure of wealth that places middle-class Westerners with mortgage debt among the poorest people in the world". What measure do we use? How does that happen? Does it measure only the value of the debt and not the market value of the property? (20 January at 16:22)

So I had to issue a correction:

You are right to ask and you deserve a correction. There is some guesswork here and I probably made a wrong guess. Not mortgage debt: I should have said "consumer debt and student loans." In more detail the relevant figure is tucked away in the Credit Suisse reportin Table 3.4 (page 110): the United States, one of the richest countries in the world, with approximately 4.5 percent of the world's population, apparently has just over 10 percent of the world's poorest people (in the lowest global decile by wealth as measured there). Compare those figures with other countries -- but which? The US has the third largest population in the world, and there are no others of similar size. Size matters because a larger population implies greater heterogeneity on many dimensions and therefore greater inequality. The next two countries by size are Indonesia and Brazil. Both have populations around the 200 million mark (Table 2-2), so around 2.5 percent of the world's population each. These two countries have Gini coefficients of wealth distribution similar to the US (Table 3-1) and they are also MUCH poorer on average, yet their shares of the world's poorest (Table 3-4), around 3 percent each, only slightly exceed their total population shares. What's going on? On the Credit Suisse measure the "world's poorest" include the people who rent accommodation, are too young to have accumulated pension rights, and borrowed to finance a flatscreen TV or a law degree. It's easier to do both of those things in the US than in Brazil or Indonesia, where many people have no access to credit. (The point I'm making is not original, by the way. It was mentioned in the original BBC report, and others have made the same point in the past in connection with previous Credit Suisse reports and their use by Oxfam.) (21 January at 11:00)

Cousin #3 came back:

So in effect, their method could compare someone who has a student loan and a car on finance, but lives comfortably in a society with good infrastructure and access to healthcare, with someone who has no debt but may live in a society where basic resources are scarce and living conditions poor, and see the former individual's debt as a major factor in the estimation of their wealth? (21 January at 12:29)

I was getting complacent now, and started waving my hands:

That's right. Non-marketable wealth (mainly learned skills and pension rights) is distributed less unequally than marketable wealth (that you can transfer by sale). Income is distributed less unequally than wealth, and consumption less unequally than income. Lifetime wealth, income, and consumption are distributed less unequally than any of these at a moment in time. They all matter, but differently, and it doesn't mean that inequality is not a problem. India has 20 percent of the poorest people in the world in the Credit Suisse table and very many of these truly have little or nothing and may never have more. (21 January at 14:15)

Not long after that I was thrown into a panic by cousin #4:

Radio 4, More or Less trailer have just said they will be discussing this stat 16.30 tomorrow, if you're interested. He seemed to hint at a similar (though less informed!) thing to Mark … (21 January at 17:33)

And by cousin #5:

I just heard the same thing on PM and came here to say what you said! (21 January at 17:38).

Cousin #4 again:

Haha - great minds! (21 January at 17:39)

Me (panicked, trying to be cool):

Great I'll try to listen. Thanks for the tip. Hopefully they've found some real experts! (21 January at 17:40)

The next day I listened, anxiously. Would Tim Harford show me up? Tim Harford, who presents More or Less, is one of my heroes, and More or Less is a great public service. My own small part in a recent episode was the acme of my career. On this occasion, the real experts did not contradict me. I lived to fight another day.

Mark Harrison : 25 Jan 2016 08:00 |  Tags: Inequality |  Comments (0) |  Report a problem