Saturday, January 24, 2015

What do those comparative wealth news reports really mean.

Credit Suisse's Research department regularly publishes a report on world wealth. (Here is the website of the one for 2014.)
Credit Suisse's 2014 Global Wealth Report reveals a rise of 20.1 trillion US dollars in world wealth in the past year, bringing total wealth to 263 trillion. The United States has seen particularly strong wealth creation, where financial crisis losses were trumped in a single year. Watch the video to find out more.
This is the source for news reports, such as:

Of course, the basic point is clear -- lots of people are poor and some people are very poor. However, the specific meaning is often lost for the sake of a headline.

It is often a very good idea to borrow money. It is a good idea if you can invest that borrowed money in a way to earn enough to pay it back, pay the interest, and take a good profit on the transaction. The people who borrow in this way tend to be those whose capital is greater than their debt -- who have a positive net worth.

On the other hand, debt bondage is a huge burden for many of the world's poor; these are the folk who are in debt and spend years or their whole lives scrimping from their tiny earnings to try to avoid falling deeper into debt. The people who borrow this way tend to have more debt than capital -- who have negative net worth.

Think about listing all the people in the world in increasing order of net worth, starting with those with the most negative net worth. If you were to sum down the list accumulating a cumulative value, that cumulative value would become more and more negative until you finally got to those with zero net worth; you would have to go considerably further -- summing as you went -- before the cumulative value would reach zero. Thus a large portion of the people on earth taken together own no more than they owe.  This is the fact behind the headlines.

A relatively few extremely rich people -- Bill Gates, Carlos Slim and their peers in affluence -- have net worth in the tens of billions of dollars. You have to go a long way down the list described in the previous paragraph to get a sum of net worth equal to the net worth of the richest 80.

There are more than 7 billion people on earth. Thus the one percent includes 70 million. If you look at the total net worth of the 70 million people who have the greatest net worth, that is a huge sum. It is sometimes estimated to equal the total net worth of the other 99 percent of the earth's people.

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