Saturday, December 12, 2015

Annals of derp: On our side for a change

This way of putting it is accurate enough. Drawing by David Horsey via
Loomis quotes a report from the Institute for Policy Studies. I wanted to leave a comment over there but the thing got too long.

It's an example of a popular way of visualizing inequality that I think we ought to stop using:
America’s 20 wealthiest people — a group that could fit comfortably in one single Gulfstream G650 luxury jet –­ now own more wealth than the bottom half of the American population combined, a total of 152 million people in 57 million households.
The Forbes 400 now own about as much wealth as the nation’s entire African-American population ­– plus more than a third of the Latino population ­– combined.
The wealthiest 100 households now own about as much wealth as the entire African American population in the United States. Among the Forbes 400, just 2 individuals are African American –­ Oprah Winfrey and Robert Smith.
The wealthiest 186 members of the Forbes 400 own as much wealth as the entire Latino population. Just five members of the Forbes 400 are Latino including Jorge Perez, Arturo Moreno, and three members of the Santo Domingo family.
With a combined worth of $2.34 trillion, the Forbes 400 own more wealth than the bottom 61 percent of the country combined, a staggering 194 million people.
The median American family has a net worth of $81,000. The Forbes 400 own more wealth than 36 million of these typical American families. That’s as many households in the United States that own cats.
Which disturbed me because it looks like there's something deeply wrong with it; namely, if you stop comparing rich to poor and instead compare the groups of poor against one another, you find that, for example,
  • African Americans and Latinos put together, something like 97.5 million people, own assets worth $3.3 trillion; but
  • the bottom 61% of the population, or about 194.5 million souls, own only $2.2 trillion.
Really? How does that work, given that a pretty large proportion of those minority community members are actually in those lower three quintiles? Did Oprah become a trillionaire? And even that wouldn't account for it.

How it works is pretty simple; the total assets of the bottom quintiles includes those with a negative net worth, people who owe more than they own, a not unfamiliar state of existence to many of us (the mean net worth in the bottom decile for 2013 was -$2,066); but the members of the minority groups, redlined and denied credit in various ways, don't generally have the "membership privileges" to allow them to rack up colossal amounts of debt, so their net worth as a group is "higher" (meaning in this case above zero).

I'm not doing the math, but I find corroboration from somebody who can, finance blogger Felix Salmon, who was similarly perturbed by a chart last year showing that the US had 7.5% of the world's poorest people, the global bottom decile, and China had none of them. It's not that China has no poverty, it has widely spread extreme rural poverty, but there's hardly any land ownership and no credit facilities, and people tend to scrape together ten dollars so they can have a funeral some day, and so even the poorest are in the black in some desperate way, whereas the global bottom decile is populated by those who have absolutely nothing, in India and Bangladesh and Nigeria, and those who have less than nothing, though we still live pretty well, in capitalist Asia and Europe and the Americas, the debt-happy US most of all. In other words it's a very strangely composed bottom, full of some people who have much less right to complain than others because they're doing a lot better than people in the next rank up, at least for the time being.

In other words, this argument style, compelling as it is, is pretty distortive, and we should probably stop using it. If it's not as sexy to say the Forbes 400, that's 0.00012% of the population, control 3.7% of the entire economy, that's a lot of economy! And it happens to be true. And
The wealth share of the top 3 percent climbed from 44.8 percent in 1989 to 51.8 percent in 2007 and 54.4 percent in 2013 (figure B). As with income, the shares of wealth held by the next 7 highest percent of families changed very little, hovering between 19 and 22 percent over the past 25 years, and registering 20.9 percent in 2013. Similar to the situation with income, the rising wealth share of the top 3 percent of families is mirrored by the declining share of wealth held by the bottom 90 percent. The share of wealth held by the bottom 90 percent fell from 33.2 percent in 1989 to 24.7 percent in 2013.
Figure B in the reference above.
The top 10% really do control about three quarters of the country's wealth, with most of that going to the top 3%, the green line in the chart above—and it's only that top 3% (some 3.5 million households out of 115.6 million total) whose share is growing, while the share of the other 90% has been shrinking for 25 and more years. If that's not shocking enough for you, you might want to consult a neurologist.

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