What Oxfam's misleading stat gets wrong about inequality

Every year, Oxfam adds up the wealth of the world’s poor, compares it to the wealth of the world’s ultra-rich, and comes out with some shocking statistic. This year, it’s that the eight richest men in the world, between them, have the same amount of wealth as the bottom 50% of the population combined.

That’s pretty obscene, on its face. Except, when you look closer, it doesn’t really tell you very much.

If you look at the numbers that the statistic is based on, from Forbes and Credit Suisse, you’ll see that the equality here is that the eight richest people in the world have a combined net worth of roughly $426 billion, or 0.16% of all the world’s wealth.

Is it really true that the bottom 50% of the world’s population accounts for only 0.16% of the wealth on the planet? Well, not really. The bottom 50% comprises five different deciles. Of those deciles, the fourth has 0.17% of the world’s wealth, and the fifth has 0.32%. Those are both very small numbers—but they’re both bigger than 0.16%.

So something funny is going on here—and that something funny is debt. When Oxfam looks at net worth, it adds up your assets, and then subtracts your liabilities. And when your liabilities are bigger than your assets, that means you have negative net worth. According to Oxfam’s methodology, the bottom 10% of the world’s population has a net worth of one trillion negative dollars—an almost inconceivably large sum.

Oxfam does attempt to address this issue in its report:

The total net debt of the bottom 50% of the global population is also just 0.4% of overall global wealth, or $1.1 trillion. If you ignore the net debt, the wealth of the bottom 50% is $1.5 trillion. It still takes just 56 of the wealthiest individuals to equal the wealth of this group.

This, however, is disingenuous. When Oxfam looks at “net debt” here, they’re just talking about the people with negative net worth. They’re ignoring the debts in the second and third and fourth and fifth deciles of the global population, which are even larger than the debts in the bottom decile. As your wealth goes up, after all, your assets rise (by definition), but so do your liabilities.

The result is that if you use Oxfam’s methodology, my niece, with 50 cents in pocket money, has more wealth than the bottom 40% of the world’s population combined. As do I, and as do you, most likely, assuming your net worth is positive. You don’t need to find eight super-wealthy billionaires to arrive at a shocking wealth statistic; you can take just about anybody.

Or, to put it another way, let’s say you’re in the second decile of the wealth distribution, with a net worth somewhere between $30 and $248: Your net worth is higher than the entire bottom 40% of the population combined—which includes people with as much as $603 in wealth.

What’s more, it’s not just the bottom 10% of the world that has debt; most of us do. Car loans, student loans, mortgages, credit cards—debt is the grease that lubricates the wheels of capitalism, and it’s everywhere. And it’s not always a bad thing.

Consider this: Would you rather have $75,000 in the bank and no debt and no degree, or $75,000 in the bank and $75,000 in student loans and a four-year college degree? As far as the Oxfam methodology is concerned, the difference is enormous: The person with $75,000 and no debt is in the top 10% of the world’s wealth distribution, while the person with the college degree is in the bottom 10%. And yet there’s a right answer to the question: You’re much better off with $75,000 in debt and a college degree than you are with no debt at all.

I’ve been talking for a while about how Oxfam’s wealth statistics are misleading, and that aggregating wealth isn’t particularly useful. At the top end, it tells you very little: There’s no appreciable difference in purchasing power between someone with $1 billion and someone with $10 billion. (Neither is going to come close to spending all their money in their lifetimes.)

At the bottom end, wealth is way down the list of priorities. What Oxfam is measuring here, after all, is saved and unspent money. For most poor people, if and when they do come into a sum of money, there’s a long list of things that they can and should spend it on, from food to shelter to healthcare to education. It would be wrong for them to save it rather than spend it. Even if that would send them up the net-worth deciles.

Remember too that Oxfam’s report is global, and covers many countries where saving money is difficult, expensive, and risky. The implication of the report—that it would be better were these people to have saved extra money, rather than spending it on things they desperately need—is both unrealistic and distasteful.

But what really makes these statistics silly is the role of debt. In Oxfam’s world, debt is a bad thing, which is subtracted from your assets to arrive at your net worth. But debt is not a bad thing! Most investments are debt, for starters. If I borrow money to start a business, that’s good for me, and good for the economy. Likewise if I borrow money to buy a car that will allow me to drive to work, or if I borrow money to get a college degree, or if I borrow money to give my family a safe and secure place to live. Debt can be found everywhere in Oxfam’s wealth deciles, and if we eradicated all debt tomorrow, most of the people in those statistics would magically become a lot richer. But that wouldn’t make them better off.

What I would love to see is not a wealth ranking based on net worth (assets minus liabilities), but rather a wealth ranking based simply on assets. If you did that, the richest 1% would no longer have more wealth than the other 99%, as they do under the Oxfam methodology. And net worth would go back to its proper place, as a mechanism useful only for comparing (rather than aggregating) the wealth of the rich.