Many thanks to Oxfam’s Ben Grossman-Cohen for responding in detail to my post about his wealth statistics. I’ll come to his detailed arguments in a minute, but it’s worth starting with the way he characterizes why Oxfam goes through this exercise of adding up the wealth of the poor.
Oxfam’s headline statistic, he says,
is meant to shock, to spark conversation and to enable us to be heard when we push for specific changes in our political system and economy that will reduce poverty. And the evidence is that this stat is extremely effective at accomplishing its goal. It is by far the most attention-getting single piece of information that Oxfam publishes, and it helps mobilize hundreds of thousands of people to take-action around the world.
Oxfam also puts out hundreds of thousands of words of research in gloriously wonky detail every single year about the underlying causes and solutions to poverty and inequality, but this single stat dwarfs them all when it comes sparking discussion. It’s probably why Salmon is more apt to focus on it than the other 36 pages in the report, or anything else we publish... It happens to be immensely powerful in pushing people to pay attention and act.
To put it another way, the statistic is tactical: it’s a highly-successful way of drawing public attention to the Oxfam agenda. It’s put out under embargo every year, with the result that every news organization (including Fusion) writes about it at exactly the same time, and Oxfam’s message is trumpeted simultaneously around the world. As a result, everybody who writes about it, myself included, is effectively becoming the willing pawn of an Oxfam PR campaign.
Grossman-Cohen is right, it’s an incredibly effective campaign. That’s because it plays into the priors of just about everybody, no matter where they stand on the political spectrum, and allows them to think of themselves as fighting on behalf of the downtrodden against a tiny, out-of-touch elite.
Note how the eight men are represented by champagne glasses, instead of being individually identified: it would only complicate matters to start making this campaign a personal attack on Bill Gates, Warren Buffett, Jeff Bezos, Mark Zuckerberg, and Mike Bloomberg. Gates and Buffett alone, through the Gates Foundation, have done much more for the world’s bottom billion than almost any other individual alive today; it makes more sense to see their extraordinary wealth as part of the solution, rather than being part of the problem.
Indeed, as I wrote today on Fusion, the Davos agenda in general has been good for the very top of the income distribution and for the very bottom. The evils of poverty are real, it must be eradicated, and we’re not close yet. But if you look at those eight men, only one (Carlos Slim) can realistically be accused of making his billions at the expense of his country’s poorest. As most Davos panels are at pains to point out, the interests of the richest and the poorest are in many ways aligned. Just look at the way capitalism and economic growth has helped hundreds of millions of Chinese people out of poverty. That’s why Davos, which works for both the very rich and the very poor, is such a great place to unveil this annual report.
If anything it’s the developed-country middle classes – the people most overlooked by Davos man – who should be most aggrieved at the way that wealth is being concentrated in the hands of the few . They’re the ones struggling with stagnant real wages and a cost of living which makes it all but impossible to save money.
But let’s get to Grossman-Cohen’s points. First, he writes:
The vast majority of people in the bottom 50 percent possess virtually no wealth at all, nor do they have debts that measurably affect the global distribution. The biggest debtors in the bottom 50 percent are Americans and Europeans who have privileged access to credit, but even if you remove all of them from the distribution the figures barely change.
This is simply false. One popular rhetorical move by Oxfam types, which I mentioned in my original post, is to remove all net debtors from the distribution and show that nothing much changes. That’s true. But that’s a very different thing from saying, as Grossman-Cohen does, that most of the bottom 50% do not have significant debts.
Grossman-Cohen should look at the very Credit Suisse report that Oxfam bases its own statistics on. Look at page 128: it shows that the poorest 20% of Europeans have debts amounting to 108% of their assets, while the poorest 25% of Americans have debts of 99% of their assets. I wish there was more about the debts of the bottom 50%, but sadly there isn’t; the report does however say that the average human on planet earth had $8,660 of debt in 2016. What’s more, debt-to-asset ratios are generally higher among the poor than they are among the rich.
When Oxfam looks at the bottom half of the wealth distribution, then, what it’s looking at is the distribution of the difference between two numbers: assets minus debts. When that difference is small, you’re poor; as it gets bigger, you get richer. If you just looked at assets and didn’t look at debts, of course it would drastically change the distribution. Indeed, a large chunk of the wealth of the rich is the debt of the poor, on the basis that one man’s liability is another man’s asset.
Grossman-Cohen admits as much just a little further on in his post, when he says that “when you talk to the people about the challenges they face in pulling themselves out of poverty, debt cannot be overlooked,” and starts talking about how the debt levels of cocoa farmers are “one of the primary factors determining whether they are poor or not”. You can’t have it both ways, Ben. Either the bottom 50% are suffering under their debts, or their debts are negligible, but both can’t be true at the same time.
Let’s flesh the argument out with some numbers. Put aside the bottom 10% for the time being, and assume the average debt-to-assets ratio for rest of the bottom 50% is a conservative 50%. On that assumption, a member of the second through fifth deciles would have $1 of debt for every $2 in assets. That person’s wealth would then double if you ignored their debts. Those people might still be in the bottom 50%, but their total wealth would rise to roughly $3 trillion or so – enough that you’d need to stack hundreds of multibillionaires on top of each other in order to match it.
Grossman-Cohen next says that Oxfam has nothing against debt, per se. I’m glad! Except, in the context of its wealth report, all debt is automatically subtracted from your assets. When I say that Oxfam treats debt as a bad thing, that’s all I mean: it’s a variable which works against you, not for you, when it comes to calculating wealth. If you have savings, for instance, and then you borrow money to start a business, then as far as Oxfam is concerned you’ve just tossed yourself down the wealth rankings.
Of course Grossman-Cohen is absolutely right when he says that debt can be bad, just as it can be a constructive force. (I’m highly skeptical of most microfinance programs, for instance, because I think that debt is a bad thing a lot of the time.) My point is just that for the purposes of the wealth statistics, Oxfam treats all debt as bad: it is never considered an investment with positive value. Which is a bit silly.
Grossman-Cohen then moves on to the fact that most assets in the bottom 50% take the form of land rather than money, and concludes that they therefore don’t constitute savings. But of course buying land is what poor people do when they have savings – and similarly selling land is what they do when they want to sell their assets. Land might be illiquid, but it’s still something which can be converted back and forth to money. And if a poor person owns land, there’s an extremely high probability that they either bought it for money, or inherited it from someone who did.
Grossman-Cohen is absolutely right when he says that “in poorer countries, non-financial wealth, such as land to grow crops, is far more important than financial wealth.” But here’s the rub: Oxfam only includes land to grow crops in your net worth if the land is privately owned by you. If you’ve been growing crops on the same bit of land for generations, but don’t have legal title to it, then it doesn’t get counted in the figures. So yes, land is a form of savings.
Finally, Grossman-Cohen asserts that “the power concentrated in the hands of the wealthy prevents the necessary policy changes that would push our economy to be more equitable”. Which might be true of, say, the top 40%, or even the top 20%. But I don’t think it’s true of the top 1%, and I certainly don’t think it’s true of the top 8. Remember that we’re talking about the global economy, here, not national economies. Now think of the policy changes which would improve the lot of the bottom 50%: they’re pretty much universally policies which the 8 richest men in the world would wholeheartedly support.
Yes, the super-wealthy have an inordinate amount of power, and yes, they use that power to increase their own wealth, even though they hardly need any more money than they already have. But the losers here are largely the European and American middle classes, rather than the poorest 50% of the world. If places like Nigeria and Brazil become richer and more equal, that’s good, not bad, for the global ultra-rich: raising the wealth of the bottom 50% is entirely in their own self-interest. It’s not the billionaires that the poor should be blaming for their plight, it’s the conservative middle classes in Europe and America who want to put their own countries first. Or, to put it another way: Don’t blame Bill Gates, blame Trump voters.