The wrong yardstick

THE theme of inequality has loomed large in recent years for delegates of the World Economic Forum’s annual meeting in Davos. This year’s gathering of plutocrats is no different, thanks in part to a much-publicised forecast from Oxfam, a charity, that the world’s wealthiest 1% will soon hold more net wealth than the other 99% put together.

Oxfam’s projection (see left-hand chart) should be treated with caution. The charity uses a straight-line projection of the trend in wealth shares in 2010-14 to forecast that just 50m adults will hold the majority of the world’s household wealth by next year. That is both too simplistic and arbitrary. If Oxfam had based its forecast on the trend in 2000-14, then the crossover point would have been 2035.

Measuring wealth is in any case problematic. Oxfam’s numbers piggyback on Credit Suisse’s “Global Wealth Report”, published in October, which found that 48% of the world’s $263 trillion in net household wealth (ie, after subtracting debts) is in the hands of the richest 1% of its citizens. The Swiss bank’s report is fairly well-regarded but data on household wealth across the globe are sketchy. And measuring net wealth leads to some very odd outcomes: the owners of the 5.1m underwater homes in America will count among the world’s poorest.

Income is a cleaner measure than wealth. In a 2013 paper Branko Milanovic, a scholar on inequality, calculated the change in real income per person between 1988 and 2008 (see right-hand chart). During that period, the incomes of the gilded 1% rose by more than 60%. But the greatest beneficiaries were people in the middle of the income ladder: the emerging middle classes in places like China, Indonesia and India. The big losers included the middle classes of the rich world, whose real incomes barely budged. Inequality is on the rise within countries. Globally, pace Oxfam, the picture is much more encouraging.