By: Bernard Stanford
If you were at all active on social media or read the news last month, you probably saw a report from Oxfam that made the rounds, claiming that the eight richest people have as much wealth as the bottom half of everybody on the planet. In fact, Oxfam releases a report in a similar vein every year, all timed to coincide with the World Economic Forum in Davos, Switzerland. Every year, the report is given wide publicity by media such as The New York Times and The Guardian. And every year, it’s just as wrong.
The warning sounds go off early with the report’s title “An Economy for the 99%,” and tagline, “Even it Up.” But the big shocker doesn’t come until page 10, when Oxfam reveals the major source for their figures: Credit Suisse. Now, there’s nothing wrong with Credit Suisse’s numbers and methods–but I couldn’t help but think, what reason would they have to specifically make a report trying to measure global inequality?
The answer is: they don’t have one, so they didn’t make one. They instead created a very comprehensive report that focuses on the world’s wealth from a financial services perspective. Oxfam is using (dare I say, appropriating?) this report to look at the world from a sociological perspective, trying to understand wealth differences between people. In practice, this means the report is highly misleading. Let’s take a look at how.
1) The Credit Suisse report looks at international wealth in US dollars using nominal conversion rates instead of purchasing power parity measures. This is fine for getting a picture of the overall layout of the world’s wealth from a financial services perspective, since the finance industry routinely moves money across borders and converts it between currencies. But it’s not fine for looking at the experiential aspect of wealth in the lives of the poor, who overwhelmingly live only in one country their whole lives and don’t tend to own stocks in foreign currencies. Price levels are much lower in many of the countries where the very poor live, so the same amount of nominal currency can in fact buy much more. By using only nominal numbers, Oxfam is basically cutting the wealth of billions of people by a factor of two, three, or even more.
To show just how much of a distortion this causes, the latest Credit Suisse report shows that wealth declined almost everywhere in the world last year. The cause? The US dollar rose in value, so the conversion rates caused wealth denoted in other currencies to appear to shrink. Thus, Oxfam considers a Kenyan or German or Indian or Omani to have lost a considerable portion of their wealth over the past year even if they earned exactly the same in their own life.
2) The report determines the “poorest 50%” by current net worth, which sounds intuitive but can be highly misleading. Many people in the developed world have significant amounts of debt, which makes them count negative in this report, even though they cannot honestly be counted as among the world’s poor. By this metric, Oxfam considers a medical school graduate with $200,000 in debt but a lifetime earnings potential of millions as nearly the poorest person in the world, and that $200,000 of debt is counted as a negative value in determining the overall net worth of the “bottom half.” An American bus driver with an annual income of $50,000 who rents an apartment, has no savings, and has a credit card balance of $10,000 would also be “very poor,” despite having a consumption level in the top 1% globally. On balance, the inclusion of first-world debt in the statistics causes a major distorting effect: Oxfam considers the “bottom half” of the world to have total assets of $1.76 trillion, but the poorest decile of Americans alone have a negative net worth of more than $400 billion. In other words, if we removed indebted people living comparatively rich lives in wealthy countries from the list, the “bottom half” would seem a good deal wealthier.
3) Finally, Credit Suisse unsurprisingly focuses its annual report on financial holdings and easily measurable assets, while disregarding most personal belongings, such as furniture, appliances, wares, farming implements, etc. This might not sound like a big deal, because in wealthy countries these possessions make up a relatively small proportion of household net worth. But for many people in poorer countries, these belongings make up nearly the entirety of their assets. Even the very poor still tend to own personal belongings that would, if converted to PPP US dollars, be worth at least $30-50. And then there are people like a goatherd in Mongolia, who might have a flock of dozens of animals but be counted by Credit Suisse as having nothing, because he owns no fixed property and has no bank balance. And since we’re dealing with billions of people, small errors add up quickly: if you disregard $50 worth of assets for two and a half billion people, then you shaved off $125 billion, a colossal amount. In actuality, the value of uncounted possessions is likely even greater.
Plenty of others have critiqued the idea at the root of Oxfam’s report, the notion that global wealth inequality is ipso facto a monstrous crime that must be remedied by fighting back against overly capitalistic policies. But even taking Oxfam at face value, it becomes clear they have not properly conducted their analysis. In the case of their annual inequality reports, they repeatedly misapply the findings of a report by Credit Suisse, and use the flawed interpretations to promote their own agenda and grab headlines.
Of course, it is a terrible thing that so many are trapped in impoverished countries. Often, they are held back by the very same far-left, redistributionist, anti-business policies that the Oxfam report is used to justify. But in any event, the fact remains that this contention that eight people have the same wealth as the bottom 50% of the world, is false.
Bernard Stanford is a senior in Jonathan Edwards College.