There was much flapping on the Twittersphere last week when rapper Kanye West mentioned that he was $53 million in debt, and asked Facebook founder Mark Zuckerberg for a billion dollars to fund his future ideas. As you do. Whether this is of any interest or not will depend on your appetite for Mr West’s self-aggrandising fashion and music visions, but what it made me think of is how we talk about wealth.
It demonstrates a conundrum in how we measure inequality, because if we’re talking about wealth to be assets minus debts, then Kanye has negative wealth of $53 million. That makes him among the world’s poorest people. Despite his private jets and fur coats, he’s poorer than I am. Apparently.
This is the main criticism that is aimed at Oxfam when they talk about global inequality, and how the richest 1% own as much as the poorest half put together. Since it’s easier to borrow in richer countries, then many of us in the West technically have negative wealth. If you have an outstanding mortgage or a large student debt, that’s enough to pitch you towards the bottom deciles. And that means that when you line up all the world’s population according to wealth, those at the bottom aren’t necessarily the malnourished Sub-Saharan Africans that we imagine in our heads. Despite the images of private yachts that typically adorn articles on Oxfam’s statistic, you don’t have to be a billionaire to come in the top few percent either. I’m there myself.
To hear the critics of Oxfam’s work, you’d think they had cleverly discovered some fundamental flaw that renders the statistic worthless. But of course Oxfam are aware of how net worth works in statistical analysis, and factoring in highly indebted rich people barely changes the scope of the inequality.
If you want to measure inequality, you could choose to focus on income instead. But you’d run into exactly the same sorts of problems. You can have little or no income but plenty of wealth – if you are unemployed but own your home, for example, or if you’ve inherited a fortune and don’t have to work. Or you could try and understand inequality by measuring consumption, but we don’t have globally comparable figures for that.
Nobody is disputing that the world has massive inequalities. That’s a fact, and if you want to present it statistically you’re going to have to take your pick from one of three measures, all of which are imperfect.
Besides, Kanye West may prove the weakness of looking at net wealth, but he also demonstrates a reason why it’s not a bad measure to choose. As you’ll have noticed, West and his family don’t live in abject misery. Neither did he lose $53 million all in one go – people kept giving him more millions to play with, even at $10 or $20 million down. And that shows the importance of credit, which is a form of financial power. As our borrowing rates as a nation show, access to credit can be as good as wealth for many purposes.
As Vox conclude in their more balanced commentary on Oxfam’s statistic, factoring in debt leads to the same conclusions. “It points towards who has the ability to use wealth as a discretionary power resource.” Those at the upper end of the scale, with more wealth than debt, are free to use their surplus to influence politics and protect their position. Even to the point of, I don’t know, using their billions to run for president.
As I regularly say, financial inequalities lead to inequalities of power, political representation, and democratic voice. It’s one of the reasons why we can’t just brush dramatic statistics about inequality under the carpet – not if we value democracy. So we should beware of the ‘move along, nothing to see here‘ dismissals of inequality statistics, and ask what their agenda is. All statistical analysis of inequality is going to involve some compromises, but we mustn’t miss the wood for the trees: global inequality is extreme, and it is a problem that can’t be ignored.
The Earthbound Report 
You might regularly say that financial inequalities lead to inequalities of power, political representation, and democratic voice but there is actually little direct evidence of it. Repetition doesn’t make it true. It might ‘be common sense’ or ‘stand to reason’ but actual studies that show it are few, and especially so outside of the USA.
It is common sense that money is the key to US politics, stands to reason. That is why Jeb Bush, with more campaign contributions than anyone else and massive spending, is now leading the Republican field…. oh no he isn’t, he crashed out with 3% support. And Trump, for all his much vaunted personal wealth, has actually been spending very little, replying on free media exposure from his far out announcements.
Of course you might point to lobbying and yes, that does seem to have an impact in the US, but most spending on lobbying is by corporations, not individuals. In a more equal world those corporations would still be lobbying on their own behalf so quite how financial inequality is the problem is unclear.
The Koch brothers are held up as wealth buying power but that misses two things. Firstly that opposing them are other billionaires like George Soros so that this spending ends up cancelling each other out, and secondly that unless the political fundamentals are there all the spending in the world won’t make views popular. In the UK General election the Tories won because they had a better leader and message, not because they bought it.
The solution to money politics is things like campaign finance reform, limits to individual donations and state funding. None of these makes anybody richer or poorer. If you can solve a problem without changing financial inequality, it suggests financial inequality isn’t the cause.
This is my wider problem with the ‘financial inequality bad’ narrative. There is a lot of people making correlations, very little actual proved causation. Circumstantial evidence is never enough to convict and it is up to those who accuse financial inequality to prove their case. It smacks to me of having a prior dislike of financial inequality and trying to tie different problems to it to justify following your prejudice. Every study that seems to tie problems to financial inequality is lauded, whatever their weaknesses. Studies that don’t show a connection are not mentioned. By this selection bias a case is made. It wouldn’t last long against a good barrister.
Logically if financial inequality was the cause of poor educational attainment by the less well off in society then if we reduced financial inequality by making the richer people poor this would reduce the educational attainment gap, even if we don’t give any more money to the poorer pupils. That doesn’t sound likely to succeed and even if it did it would be by levelling down reducing educational attainment overall, rather than bringing poorer children up. Hardly a good outcome.
If financial inequality was a cause an absolutely equal country financially would have far fewer poor outcomes in health, education, power and economic growth. Yet we know empirically that is not the case. The solutions to the various problems laid at financial inequalities are specific to each problem and none involve making richer people poorer for the sake of it. If you follow successful policies to tackle inequalities in health, education, social mobility and power then your society will be more equal. Financial inequality will probably naturally decrease as a result of society being more equal but that is a consequence, not the removal of the cause.
The risk of focusing of financial inequality is that the simple solution (soak the rich) doesn’t tackle the actual problems and is actually harmful to the poorest. But if you focus to it rather than the real problems you make the bad solution more likely.
I’ve presented a wealth of evidence of the harm inequality causes, including sources such as the UN, the IMF and the World Bank. You’ve rejected every one of them, so it’s hardly likely that I’m going to change your mind now.
You’re entitled to your opinion, but in thinking that inequality doesn’t matter and nothing can be done, you are in a thankfully dwindling minority.
Sadly woolly thinking is always in big supply.
I have read around this subject and it is really hard to establish a definite causal link. Those that studies do have weaknesses that make the strength of their links seem not so compelling.
For example the OECD report that said net inequality hurts economic growth also found that changes in human capital (education) doesn’t effect growth. That is very surprising as we expect to see a close link between investment (such as education) and growth. That suggests to many economists that the OECD report may be flawed. That doesn’t stop you banging on about it as if it closes the case.
Now income inequality is a much better metric to look at than wealth. Your example of the unemployed person who owns their own home is a bad one since they will have a poor lifestyle as they have no income, they will only have spending power if they either sell their asset or rent it out (creating an income!) If you’ve inherited a fortune and don’t have to work you are living off the income (Income again!) or spending your capital which will reduce your future income.
Even identifying financial inequality as a cause of various problems doesn’t tell you how to fix those issues. As I said we know just making the rich poor to reduce inequality doesn’t work. So the policies to fix the individual problems are the key and for those tackling financial inequality is well down the list. Sadly you are lacking as to answers. The more I read of how bad financial inequality is the more I think the sound and fury is to distract from the paucity of ideas on the your side on how to solve the actual problems financial inequality is claimed to cause.
But no, you have told me many times its a problem and that is that.
A quick roundup of the sources you’ve disregarded includes Oxfam, the OECD as mentioned above, Credit Suisse, the UN Human Development Reports, the World Economic Forum, The Spirit Level, the New Economics Foundation, the CBI, the IMF, and probably many more from a broad range of perspectives.
Woolly thinkers the lot of them, or maybe …
It’s also remarkable that after all this time you default to the belief/paranoia that I’m out to ‘soak the rich’, when I’m not an advocate of redistribution. I’m much more interested in sharing wealth more equally from the start, giving people a stake in growth rather than letting inequality run wild and then try and take money back off people afterwards. That’s why I write about alternative business models, a citizens income, alternative forms of money, land value taxation, pigovian taxes, and how we could do away with income tax altogether.
So really I don’t know what to say to your endless and predictable commenting on every inequality post. Pay more attention to the actual conversation or take your lament somewhere else, that’s really the best I can do.
For someone who says I should pay attention to the actual conversation you don’t read mine very well. I didn’t say that you were in favour of soaking the rich, but that if your supposed cause of every ill is inequality (and the number of bad things it does is amazingly huge) then that encourages simple solutions like soak the rich that we know are harmful.
Your reading is uncritical and limited to what supports your view. You know inequality is bad and you want to prove it. That you are part of a fashion is nice but then flares were fashionable once.
My contention is that you are looking at inequality on its head. Rather than social problems being caused by inequality, inequality is a symptom of social problems such as poor educational outcomes. Fix the actual problems and inequality of outcomes will naturally decline. Sweden has high levels of wealth inequality along side great social indicators.
So because other people think soaking the rich is an easy answer, I can’t talk about inequality? That’s a bizarre argument. All the more reason to keep talking, bringing more ideas to the table.
I don’t think I have it backwards at all. I’m not a communist. I don’t think that absolute equality is a goal in itself. I want a healthy participative democracy, an end to poverty, a sustainable economy, citizens who are free and healthy and able to make the most of their lives. I am convinced that inequality is an obstacle to those things, but I don’t for a moment think that we could solve inequality and watch society suddenly flourish – as you say, the only way to do that would be to just confiscate wealth. I have a much more holistic view of the world than that, which is why this blog covers so many different topics.
If you don’t see those nuances and think I’m following a fad, then don’t join in. If it is a fad, it’ll pass and those who were part of it will look back in embarassment, like the aforementioned flares. No need to come and lecture me week and week out about how other people have simplistic views of inequality.
If you carry on linking to people who have a simplistic view of inequality then I’ll carry on commenting. Someone who thinks puts Oxfam top of their list of evidence on inequality may be guilty of simplistic thinking.
I have been clear that the problem with focusing on inequality overall is that it leads to bad policies, be they soak the rich or thinking you can restructure the economy to predistribute fairly without reducing its ability to produce the goods, services and wealth we want.
That list isn’t in order. I read everything going on inequality, and I could write you a list of popular sources on inequality that I don’t repost because they aren’t credible or offer no real solutions, from trade union material to anti-austerity campaigns.
You know full well that don’t accept the easy redistribution answers, and that I acknowledge the fact that inequality is falling internationally. So don’t accuse me of being simplistic.
I’m done arguing about this. We’re going to have to agree to disagree, and if you won’t accept that, you’ll be posting your repetitive and predictable comments to no reply.