“There is no moral or economic justification for the six wealthiest people in the world having as much wealth as the bottom half of the world’s population, 3.7 billion people.”
— Sen. Bernie Sanders (I-Vt.), remarks during a speech at Westminster College, Sept. 21, 2017
Economic inequality in the United States was a central issue during Sen. Bernie Sanders’s 2016 presidential campaign. So it comes as little surprise that he highlighted global wealth inequality during a speech on foreign policy at Westminster College on Sept. 21.
During the campaign, Sanders often recited statistics on the staggering income and wealth inequality in the United States. He has made a habit of relying on simplified statistics that are provocative but do little to illuminate the complexities of the U.S. economic system. And this time, Sanders has focused on an even more complex system: the global economy. How do his stats hold up in this arena? Let’s take a look.
Sanders’s numbers on the world’s six richest people come from the Forbes billionaires list, which tracks each billionaire’s wealth in real time. As of September 2017, the six richest people have a combined net worth of $462.6 billion. (Among the names on the list: Jeffrey P. Bezos, the chief executive of Amazon and owner of The Washington Post.)
The figures on wealth in the bottom half of the world’s population come from a January 2017 report by Oxfam, which pulls its data from a 2016 report on global wealth inequality by the investment firm Credit Suisse.
Credit Suisse estimates global wealth in 2016 at $256 trillion. The report breaks this global wealth into percentiles, with the bottom 10 percent owning -.43 percent of the world’s wealth and the top 10 percent owning 89 percent. To calculate the bottom 50 percent’s share, Oxfam added up the bottom 5 percentiles: -.43, .02, .08, .17, .32, respectively. The bottom 50 percent owns .16 percent of the wealth or $409 billion.
Under this accounting, Sanders’s own net worth, estimated to be $460,000 in 2014, puts him in top 1 to 5 percent in terms of global wealth.
Since the wealthiest six people own $462.6 billion and the bottom 50 percent own $409 billion, the case is closed, right? Well, not quite.
Regular readers of the Fact Checker might remember that we gave Sanders One Pinocchio in 2016 for a political ad claiming that the 15 richest Americans gained as much wealth as the bottom 100 million in a two-year period. While technically correct, the condensed sound bite lacked nuance about wealth accumulation and debt in the United States. Sanders is making similar omissions here, too, but on a larger, less accurate scale.
Let’s dig a bit deeper into both data sources. The Credit Suisse report measures wealth as net worth, or assets minus debts. This means people with burdensome debt and a high income but few assets wind up ranking lower on the global wealth scale than someone with no debt, low income and no assets. That means a recent medical school graduate in the United States with high earning potential and loads of debt would wind up on the lower end of the scale than someone in India living on $2 a day.
This chart from the Credit Suisse report shows the share of adults in the lower half of global wealth distribution. In the United States, almost all the adults in the lowest decile have negative wealth. Additionally, nearly 35 percent of adults in Europe fall into the global bottom half, with nearly 10 percent holding negative wealth.
Credit Suisse points out that adults in these two places “contribute the bottom wealth decile, which is a reflection of the greater ease with which individuals — especially younger ones — acquire debt in advanced economies.”
When the lowest 10 percent of the wealth spectrum, which holds -.43 percent of the global wealth, is removed, the remaining 40 percent of the bottom 50 percent own $1.51 trillion.
Assets and debts aside, the Credit Suisse report pulls data on wealth from an amalgam of sources. Information on wealth and debt is not measured in many countries, so Credit Suisse used a statistical model to estimate wealth. It notes that “no country in the world has a single comprehensive source of information on personal wealth, and many low and middle-income countries have little direct evidence of any kind.” Thus, data on 164 out of 195 countries are estimated.
With respect to the richest people in the world, Forbes also uses net worth. Bill Gates, co-founder of Microsoft, tops the list with $85.6 billion. Forbes does not provide a breakdown of his wealth, but according to his profile on Bloomberg, Gates owns roughly 1 percent of Microsoft, with the remainder of his wealth held by Cascade Investment, which “controls stakes in dozens of publicly traded companies, including Canadian National Railway, Deere and Ecolab.”
With so much wealth held in stocks, Gates’s wealth is prone to major fluctuations. Sudden changes in the stock market, such as the gyrations during the run-up to the 2016 election, will affect his bottom line. Bloomberg notes that Gates’s wealth has grown by $4.77 billion from 2016 to 2017.
The Credit Suisse report considers wealth held in the form of financial and nonfinancial assets, primarily housing and land. In countries such as India and Indonesia, which comprise a large share of the bottom 50 percent, wealth is primarily held in nonfinancial assets, “reflecting both the importance of land and agricultural assets and the lack of financial development,” the report notes. Credit Suisse even notes in the introduction that globally, “in 2016, the share of nonfinancial assets increased for the first time.”
In other words, the comparisons are mismatched. Gates’s wealth is held in a complex financial system, but his wealth is being compared with nonfinancial wealth, the value of which does not fluctuate (or soar) with the same ease.
There’s yet another wrinkle. Credit Suisse converts all the currencies to U.S. dollars, based on the value of the dollar at the time in question. However, it does not convert currencies using purchasing power parity exchange rates. PPP is a method of equalizing currencies by comparing how much it would cost to purchase an equivalent basket of goods in two countries. The measure helps to assess cost of living and inflation rates and is more commonly used when making international comparisons.
Yet Credit Suisse decided not to use the PPP exchanges because assets of the top few percentiles are often held in many countries. Without using PPP rates, wealth in every other country is pinned to the strength of the U.S. dollar. The stronger the dollar, the higher the purchasing power abroad, which inherently means relative wealth in other countries will be underrepresented.
Credit Suisse acknowledges this issue in the report. “Between 2000 and 2007, dollar depreciation raises the regional growth rates; but dollar appreciation in more recent years has had the opposite effect,” the report found. “As a consequence, wealth per adult in 2016 is at or below its 2007 level in every region except Asia-Pacific, North America and China.”
Globally, inequality is decreasing among nations largely because of gains made by China and India. Economist Branko Milanovic investigates this phenomenon in his book, “Global Inequality.” During a Q&A with Forbes in June 2016, he said that although inequality is increasing within nations, it has declined among nations. From 1988 to 2011, the income of China’s middle class grew, dampening the divisions among countries.
“If you rank people by their incomes globally, those who have benefited during this period have leapfrogged over a large number of people,” he said. “In 1988, for example, if you were a middle-class urban Chinese, you were at the 44th percentile of the global income distribution. Now you are at the 74th percentile. You have thus leapfrogged over 30 percent of the world population or some 2 billion people.”
And even without China’s gains, Milanovic points out that growth in India, Vietnam, Indonesia and Thailand has helped to narrow the gap among nations.
Despite all this, Sanders’s team stands by Oxfam’s methodology, according to spokesman Josh Miller-Lewis. The main takeaway, Miller-Lewis points out, is that little to no wealth can spell disaster in a time of crisis. Miller-Lewis also cites Milanovic:
“Even for those people in the rich world who are ‘anomalously’ placed among the wealth-poor and who may lead nice lives despite owning nothing, a shock in the form of a medical emergency — unless there is public health care — or loss of job may have catastrophic consequences. There is just no wealth to fall back on to tide you over the bad times.”
Update: Laura Rusu, Oxfam spokeswoman, responded to this fact check with the following statement:
Oxfam’s statistic relies on methodology developed by some of the world’s leading economists. It has been used and defended by the most acclaimed economists working on inequality issues including Nobel Prize winning economist Joseph Stiglitz,Gabriel Zucman, and Branko Milanovic who has said that “the methodology is quite established and most of the critiques are misguided.”
Because data on global wealth is inherently incomplete, there are reasonable questions that can be raised about the methodological treatment. But it is disingenuous to try to apply the black and white language of fact checking to an academic conversation over research methodology where reasonable people can have different perspectives.
Worse yet, The Fact Checker misses the point: the inequality crisis is spiraling out of control with the wealthiest one percent having more wealth than the rest of us combined. What to do about this crisis should be the debate we should be having.
Update, Oct. 4: Dean Baker of Center for Economic Policy, explains why wealth is not the best measure for economic inequality, and urged The Fact Checker to apply the same level of scrutiny in this fact check to other labor and economic issues which he said have been misrepresented by The Post.
The Pinocchio Test
We cut Sanders some slack earlier when he made an inequality comparison within the United States. But wealth is a fundamentally misleading measure if you’re comparing countries across the globe. It’s one thing to look at inequality inside a country, but international comparisons are in another realm and fraught with even more problems.
Without considering how debt is measured and held, what kinds of assets each group owns, or how the currencies are converted, it’s hard to make heads or tails of what wealth actually means, with respect to people’s daily lives around the globe. Moreover, negative wealth — which includes people with high standards of living — really drags down the bottom 50 percent. Sanders’s statistic, while provocative, is basically meaningless. He earns Three Pinocchios.
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