Thursday 28 January 2016

The Poverty of Inequality Reports

My column in last week's NBR went through the latest Oxfam report on global inequality.

Among the problems:
  • Any chart showing the time series wealth of the n richest people today has a strong bias towards showing an increasing trend. Anyone who was on last year's top-n list but had a poor run drops off the list, with his decline not measured; anyone who didn't make last year's cut but did this year is pretty likely to have had good returns recently. A chart showing the time-series wealth of the 62 people who were the richest people in 2002 would have a different pattern than a chart showing the wealth in prior periods of this year's 62-richest.

  • Failing to account for net debt held by people in rich countries with good prospects means that Oxfam was able to report a "number of billionaires" figure about half of what they'd otherwise have had to have reported. In their appendix, they note the problem isn't big because it doesn't take many of the richest billionaires to cover the total debt in the developed world, but the top richest billionaires are much richer than the ones that are 60th through 120th. 

  • Most of the movement in the wealth of the bottom 50% shown on their big headline chart is just fluctuations of the US dollar relative to others. I doubt that a very poor person in Sub-Saharan Africa notices or cares much about the US dollar exchange rate. The world's wealthiest, by contrast, will have globally diversified portfolios and far less subject to US dollar currency risk. Tell me the green line below isn't just tracking the US TWI. And note that the Credit Suisse report warns that the changes in wealth are strongly influenced by exchange rates.

It's also worth noting that the Credit Suisse report has 453,000 Kiwis in the world's top 1% by wealth. Just owning your own home in Auckland will get you pretty close to the line. And about half of all kiwis are in the world's top 10% by wealth. If you want to hate on the top 10%, or the top 1%, you might want to look in the mirror.

An ungated version of the column is now up here. You should subscribe to the NBR.

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