Stop adding up the wealth of the poor

By Felix Salmon
April 4, 2014

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It’s the meme that refuses to die. It started, back in 2011, with the Waltons: six members of the family, we were repeatedly told, were worth as much as the bottom 30% of all Americans combined. I tried to address this silly stat back then, but now it’s gone global: back in January, Oxfam announced that the world’s 85 richest people had the same wealth as the bottom half of the global population. And now Forbes has come along to say that, actually, it’s not 85 people — it’s a mere 67.

Oxfam does a pretty bad job of footnoting its report, but I did manage to finally track down how it arrived at this conclusion. The 85 (or 67) number is easy: you just start at the top of the Forbes billionaires list, and start counting up the combined wealth until you reach $1.7 trillion. The harder question is: where does the $1.7 trillion number come from?

The answer is that it comes from a pair of tables in Credit Suisse’s 2013 Global Wealth Databook. First of all, you have to find the total wealth in the world, which you can find at the bottom of the fourth column on page 89: it’s $241 trillion. Then, you flick forwards to page 146, where you find the proportion of all global wealth held by each of the world’s income deciles. The top 10% have 86% of the wealth; the next 10% have 7.8%, and so on. Add up the bottom five deciles, and you get 0.7% (not 0.71%, which is the number in the Oxfam report; I have no idea where that extra basis point came from). And if you multiply $241 trillion by 0.7%, you get $1.7 trillion.

All of which makes a certain amount of sense, until you start looking a bit closer. For instance, notice anything odd about this chart?

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The weird thing is that triangle in the top left hand corner. If you look at the tables in the Credit Suisse datebook, China has zero people in the bottom 10% of the world population: everybody in China is in the top 90% of global wealth, and the vast majority of Chinese are in the top half of global wealth. India is on the list, though: if you’re looking for the poorest 10% of the world’s population, you’ll find 16.4% of them in India, and another 4.4% in Bangladesh. Pakistan has 2.6% of the world’s bottom 10%, while Nigeria has 3.9%.

But there’s one unlikely country which has a whopping 7.5% of the poorest of the poor — second only to India. That country? The United States.

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.

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