Deepening Global Inequality Or Dodgy Statistics?

A recent report by the anti-poverty advocacy organization Oxfam has made headlines around the world.  The report, "Wealth: Having It All and Wanting More," shows that global wealth is increasingly concentrated in the hands of a small wealthy elite.  According to Oxfam, the wealthiest one percent will soon own more than the rest of the world’s population: the share of the world's wealth owned by the richest one percent increased from 44 percent in 2009 to 48 percent in 2014.  Oxfam expects the wealthiest one percent to own more than 50% of the world’s wealth by 2016.

The Oxfam report is based on data from Credit Suisse's annual Global Wealth Databook, and the Forbes billionaire list.


Some commentators have pointed out that Oxfam's methodology is flawed however, and their results potentially misleading.  Felix Salmon, for example, has repeatedly taken Oxfam to task for their methodology.  One issue, Salmon explained, is that it is statistically unwise to take a chart like the one provided by Credit Suisse (above) and extrapolate from it as Oxfam did (see chart below): "The lines on the Oxfam charts are thin, which gives the impression that the numbers are precise. But of course the numbers are anything but precise: the error bars on all these data points are huge, which means that the variation over the years could easily just be statistical noise." (For an illustration of statistical noise, see our recent post, "The Difference That Statistical Noise Makes: US Job Reports": http://teachingwithdata.blogspot.com/2015/01/the-difference-that-statistical-noise.html)


Also problematic, Salmon argues, is Oxfam's reliance on Credit Suisse's method of adding up wealth:
"If you look at the tables in the Credit Suisse databook, 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."


He continues: "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."

These criticisms are not meant to imply that there isn't an enormous amount of wealth inequality in the world.  However there are two important takeaways:

  1. "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'."
  2. "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 [...] 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."


Read more:
http://www.huffingtonpost.com/2015/01/19/world-wealth-oxfam_n_6499798.html
http://www.oxfam.org/en/research/wealth-having-it-all-and-wanting-more
http://fusion.net/story/39185/oxfams-misleading-wealth-statistics/

TeachingwithData.org resources:
The Difference That Statistical Noise Makes: US Job Reports (http://teachingwithdata.blogspot.com/2015/01/the-difference-that-statistical-noise.html)
Wealth Inequality in America (http://www.teachingwithdata.org/resource/3922
Wealth and Health of Nations (http://www.teachingwithdata.org/resource/2984)
Frederique Laubepin

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