Tuesday, 19 January 2016

Oxfam's global inequality statistics: don't believe the anti-capitalist hype

 

This morning’s news led with the “horrifying” news that, to the world’s richest 62 people own wealth equal to the entire poorest half of the world. Guest poster Ryan Bourne drills down . . .

The media is running with Oxfam’s annual "shocking" statistic on wealth. This year "the richest 62 people have the same wealth as poorest 3.6 bn."

But all is not what it seems: 

1) The methodology Oxfam used implies there are more poor people in North America than in China.

Sounds counterintuitive, right? The Oxfam claim is made using Credit Suisse’s net wealth figures — which add up people’s assets and then subtract debts. So, some of the poorest people in the world would be those unfortunate souls who graduate from Harvard with law degrees and big loans to repay.

This may be true in a strict statistical sense where poverty is measured materially by net wealth — but is certainly not the understanding of poverty most sane people have. Oxfam’s own chart, for example, shows that over 10 per of those in the bottom global wealth decile live in North America.

2) This methodology almost by construction creates big scary statistics.

The above point speaks to a broader truth. It doesn’t take an advanced mathematician to work out that adding up lots of negatives and zeros (after all there are lots of us, especially my generation, with little in the way of assets) in the lower parts of the distribution exaggerates any comparison with those with big net positive wealth at the top — hence the scary statistic.

Oxfam counters this by calculating the proportions excluding debts, and say that it does not change their results much. But we are still left with the issue that people like me, with few assets but in rich countries, would be considered among the poorest in the world. This shows that what really matters to our understanding of material poverty is incomes — and global income inequality (which Oxfam barely mentions) has fallen over the past three decades.

3) The median age of the global population is between 35 and 39.

Oxfam likes to cite another statistic, which is that the top 1 per cent has a higher net wealth than the bottom half of the distribution. But we know from the lifecycle of asset and debt accumulation owing to demographics that people tend to have little in the way of asset accumulation until well into their working lives. We also know that the many of the oldest will live in the very rich countries and be very rich. It is not surprising then that the global net wealth distribution is so skewed — demographics alone is vastly important.

4) Oxfam is inconsistent in how it uses these statistics.

At a global level, Oxfam highlights the level of net wealth inequality. Whenever they use the very same Credit Suisse data to look at the UK, for example, they discuss the trends — i.e. the changes in the levels.

Why are they not consistent and talk about the level of net wealth inequality in the UK? Might it be because the same data shows that most countries have higher net wealth inequality than the UK (on Gini coefficient, top 10% share and top 1% share), which would not fit with Oxfam’s domestic narrative? Might it expose that some of the countries which have bigger welfare states and more redistribution have higher wealth inequality because there is little incentive for the poor to save and accumulate assets?

5) Oxfam — a development charity — is now obsessed with the rich rather than the poor.

One would think that Oxfam as an anti-poverty charity would focus its energies on the vast literature showing the conditions necessary for poverty eradication and the role markets and capitalistic institutions can play in doing so.

Instead Oxfam is obsessed with the global rich — almost implying that the wealth of the rich causes the poverty of the poor. It can do, in some cases — where cronyism is rife. But there is scant evidence this is the important driver of current distributions. And Oxfam implying that it is, whilst perpetuating the fixed pie fallacy, is appalling for a supposed development organization.

6) At home and abroad, Oxfam is now like a one-club golfer: more government is always the answer.

This new report advocates for living wages, curbs on executive pay and many other "progressive" policies. Previously Oxfam has advocated for financial transactions taxes and wealth taxes. These are repeated, with no nuance to show the economic challenges facing different developing countries around the world. Perhaps Oxfam would like to highlight all the successful countries where this sort of agenda has alleviated the absolute living conditions of the poor consistently?


Ryan BourneRyan Bourne is the IEA's Head of Public Policy, Director of the Paragon Initiative, and co-author of "The Minimum Wage: silver bullet or poisoned chalice?" and "Smoking out red herrings.
This post previously appeared at IEA's blog and Anything Peaceful.

RELATED POSTS:

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[Click for story and interactive chart]

  • “Global capitalism is lifting people out of poverty at the fastest rate in human history. Global inequality is narrowing, fast. Oxfam will not, and cannot, dispute such things – but this doesn’t suit its new anticapitalist agenda. So it talks about rich people and tax havens instead.”
    What Oxfam won’t tell you about capitalism and poverty – Fraser Nelson, SPECTATOR

10 comments:

  1. The statistic is actually an improvement, insofar as this sort of thing can be measured.

    A century ago - in the days of John D Rockefeller, JP Morgan, various Vanderbilts, various Astors, Hugh 'Bendor' Grosvenor, and a handful of others - CONSIDERABLY fewer than 62 people owned the same wealth as the bottom half of the World's population.

    The further back you go the fewer and fewer people it took to own that same level of wealth.

    ReplyDelete
  2. Henry Ford in his day would have been one of the 62.He enabled the masses to be able to afford a motor vehicle. This was instrumental in taking humans from a primitive lifestyle to the modern lifestyle we know today, and don't we love our motor vehicles. Henry Ford was a great man.

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  3. Andrew Berwick19 Jan 2016, 19:28:00

    The whole idea of measuring poverty, or measuring "inequality" (in reality there's no such thing) is just communism, pure and simple. 50 years ago anyone doing this in the US would have been jailed. 100 years ago they would have been shot.

    ReplyDelete
  4. One amusing aspect of this is the graph where the red line represents those earning $2 per day.

    What they fail to mention - due to ignorance, sloppy research, and a desire to make hysteria fit a predetermined result - is that $2 per day in 1925 equates to a weekly income $778 per week in today's money, or $40,000 per year.

    Mr Ryan Bourne, instead of also getting into a boring wankfest, should simply have asked his readers if they think an annual income of $40,000 equals poverty; the answer would be a resounding 'no', and argument won, checkmate.

    ReplyDelete
    Replies
    1. According to $US inflation figures $2 per day for a 5 day week in 1925 is $135 in today's money. Where the hell do you get $778?

      Delete
    2. I got that number from the website www.measuringworth.com/ppoweruk/

      1. I took the old 'rule of thumb' in New Zealand that 1 pound equals $2

      2. I used the figure of 7 pounds ($14 or $2 per day X 7 days per week) in 1925 compared with 2014 (it won't calculate anything for 2015 yet)

      3. Various figures are given and I used the "historical standard of living" of 356 pounds.

      4. I went to xe.com/ucc and converted 356 pounds into NZ dollars, although I note the exchange rate has changed since I did it an hour ago and now the figure is up to $786 - (people in 1925 are even less poor than an hour ago! haha!)

      Delete
    3. Well they did make it clear it was $2/day in 1985 prices. Therefore whatever $2 was worth in 1925 is irrelevant isn't it?

      Delete
  5. There are lies.

    There are damned lies.

    There are statistics,

    And there are Oxfam statistics.

    ReplyDelete
  6. Another highly relevant point is that the proportion of wealth owned by the 62 individuals that is tied up in personal assets, and used for the benefit of their own consumption would be miniscule. The vast majority of that wealth is in productive enterprises that create jobs and wealth for others, and without those individuals much of it would not exist.

    ReplyDelete

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