Worstall @ the Weekend One of the great statistics being bandied about in the great inequality debate is that the Walton family have more wealth between the four siblings than the bottom 40 per cent of Americans do in total. Apparently this is something most shocking – and, of course, something must be done.
I would argue that there's nothing very unusual in this at all and also that it's actually a thoroughly good idea. Who knows, by the time I've finished explaining why one or two of you might even agree with me.
The first point is that wealth distributions are always hugely lopsided, much more so than income distributions. It's possible to have negative wealth, in the same way that we don't record negative income in the usual numbers. What we record is net wealth; the value of assets minus the value of debts.
So, for example, someone in negative equity on their house probably has negative net wealth. This is not the same as stating that they are a pauper, of course, so we need to be careful of insisting that it is.
The second point is that we have lifetime effects to consider when it comes to wealth. You don't have to buy the full Modigiliani lifetime savings hypothesis to note that everyone – other than the lucky sperm club – has zero or negative wealth at some point in their lives. Most people climb up out of that at some point, too.
Take, as an example, a hypothetical newly minted Oxbridge graduate off to make her fortune in the City. She'll be making £60,000 perhaps, has that hugely valuable degree, oodles of contacts and a bright future. Yet, in the way we measure these things, she's got negative financial assets thanks to her student debt. We don't count that degree as being a financial asset, despite the world and its dog telling us all that getting a good degree will increase our income by hundreds of thousands over our lifetime.
By the time she, you or I are in our 60s and ready to think about retiring, we'd rather hope to have a little pension pot to support us in our dotage. Such pension pots are included in our estimates of wealth. So, we'd rather expect people in their 20s to have no or negative wealth, those in their early 60s to have quite a bit.
That distribution is just going to be a great deal more unequal than that of income. We could also note that Oxfam report just recently, back before Davos. You remember, the one where they pointed out to us that the top 80 people in the world would soon own more than the bottom 50 per cent and that the top one per cent would soon own half of everything. This just isn't a surprise to those who study wealth distributions: it's rather how we expect it to work out.
We can also tie those points together and point out that most of the truly poor (as in, truly non-wealthy, rather than low income) people are actually in the rich countries. For it's only in the rich countries that we have financial systems sophisticated enough for any of us to get into enough debt to actually have a substantial negative wealth value. No-one's going to let a landless peasant get $1,000 into debt: half the correct age cohort in the US or UK gets $30k or more into student debt. That's who the truly non-wealthy of the world are, in these numbers.