The rich get richer while the poor get poorer. How many times have you heard about the terrifying rate of income and wealth inequality in the world? The savviest among you already suspect that this is another propaganda campaign to push political agendas, and you’re right. We’ll take a close look at wealth in the world and the U.S. to blow this wide open and expose the truth behind wealth inequality in America.
The World
A very popular stat going around today touts that the 62 richest people in the world own half of all wealth. Taken at face value, this is an infuriating number. Then again, biased propaganda is supposed to incite strong emotion.
What that statistic neglects is that this actually represents a decrease in global wealth inequality. Far more importantly, the rate at which wealth is changing favors the world’s poor far more than any other group.
Going back to 2001, wealth breakdowns are very interesting. In 2001, 29 percent of the world was living on less than $2 USD per day. By 2011, that percentage had dropped to 15. When you consider a global population increase of 800 million in that span, the numbers quickly become impressive.
Overall, the world’s poorest gained $15 billion in wealth over the decade, representing a 1000 percent increase in assets. Over the same decade, the wealthiest on the planet gained roughly $2 trillion in overall value.
Now, let’s discuss the two facets of this data. Obviously, $2 trillion is a lot more than $15, billion, so the richest did in fact get richer by a much larger sum than the poor got less poor. However, when you compare the rates, things look completely different. From 2001 to 2011, the world’s wealthiest increased their holdings by 30 percent, much lower than the 1000 percent seen in the poorest sectors. More importantly, the number of people sharing that top chunk of change increased by 33 percent.
Understanding this breakdown focuses on two points. First, it is easier to make large dollar gains on larger holdings. Gaining one percent interest on a million dollars is worth more than one percent interest on a thousand dollars. While that’s obvious, it shows that increasing wealth for the world’s poorest is substantially more difficult because there is less capital to use. That the rate of increase has been so dramatic borders on miraculous.
The second point is that the individuals in the richest group have gained wealth remarkably slowly. Since the top population increased by a greater margin than the total wealth, already rich individuals aren’t really getting richer. Instead, more people are breaking into higher echelons of wealth.
This is the dirty truth that is masked by propagandist stories. Wealth is increasing for the richest, but it is mostly because the number of rich people is growing — a result of the fasted wealth mobility the world has ever seen. If everyone in a room has ten dollars, and you double the number of people in the room, the room gets richer even if the individuals don’t.
The United States
We’ve taken big steps to debunk the most extreme claims, but fairness is important. Half of the income motility of the last decade happened in China. Poverty rates went from 88 percent to 6.5 percent during their huge economic expansion, and that accounted for a wealth gain of $4.3 trillion for the bottom half of earners in the world. There are plenty of regions that have not enjoyed this change. The U.S., for instance, has a different picture, but it is no less painted through bias.
Census reports show that the top 10 percent of U.S. citizens hold 75 percent of U.S. wealth. This accounts for savings, investment portfolios, property value, pensions and the other myriad of assets that could potentially be liquidated and counted as spendable wealth.
There is one category of particular importance. The number was calculated including pensions, but not social security. When you crunch the numbers, it shows that the top 10 percent hold $60 trillion, while the bottom 90 hold only $20 trillion. However, when you add in social security, the bottom 90 gain $25 trillion in assets. So, if we include retirement savings for everyone, then suddenly the top 10 percent only hold 57 percent of American wealth.
Besides debunking math tricks that paint an untrue picture, we can also account for wealth mobility in the U.S. In the last ten years, the number of American billionaires has doubled. On a more practical standpoint, the threshold to be included in the top 10 percent has risen by roughly 10 percent.
The poverty line, on the other hand, has risen by 100 percent. In other words, the richest are 10 percent richer in the U.S. while the poorest are twice as wealthy. The truths that explain wealth mobility for the globe also apply in the U.S., and the bottom line is that the rich appear richer simply because there are more of them than ever before.
In the meantime, in the U.S. and across the world, the poor are getting richer much faster than anyone else.
Regards,
Ethan Warrick
Editor
Wealth Authority
