Wednesday, January 18, 2017

Oxfam's upside down inequality study: Statistical games hide optimistic reality of global gains

By Bjorn Lomborg.
"Today there is a commonplace — and wrong — impression that inequality is inexorably rising. Oxfam just contributed to the misunderstanding by claiming that the richest eight people own the same amount as half the world’s population.

Oxfam measures net wealth, not income. Crucially, it includes ‘negative’ wealth, meaning the 5% of Americans with student loans or negative equity in their houses are considered among the world’s poorest — poorer than three-quarters of all Africans. This means that even the most impoverished soul you could imagine — a day laborer from Zimbabwe with nothing but a comb to his name — in Oxfam’s eyes is richer than the poorest 45% of the world’s population. Oxfam’s data also leaves out any entitlements to pensions and entirely ignores the huge assets owned by the state.

The real story on inequality is a much more optimistic one than Oxfam’s narrative. Here income matters much more than wealth. Measured over the past two centuries, the gap between rich and poor incomes certainly grew. But this is because ever more people were lifted out of poverty. In 1820, global inequality was quite low simply because almost all of our ancestors were equally poor. The Industrial Revolution saw rapid income growth in some and then many countries.

Nearly 200 years ago, around 94% of the planet was impoverished. In 2015, the World Bank found that for the first time ever, less than 10% of the globe was living in absolute poverty. Focusing on inequality alone means that we fail to recognize this amazing achievement freeing so many from the shackles of poverty. As Nobel Laureate economist Angus Deaton says, just because not everyone breaks free, it “in no way makes the escape less desirable or less admirable.”

In 1820, the divide between rich and poor incomes was as wide globally as it is in today’s most unequal societies, like Brazil or Mexico. Thanks to rapid development in some countries, the gap grew after 1820, and was especially bad from the 1950s for several decades.

From around the 1980s, something remarkable happened. Along with massive numbers escaping poverty, a burgeoning global middle class emerged. This class numbered around one billion people in 1985. Thirty years later it has more than doubled to 2.5 billion, with 430 million more Chinese joining. This is the reason that global inequality has actually declinedover the past three decades, and quite rapidly so in the last 15 years.

Within countries, income inequality has certainly risen somewhat, mostly as an outcome of globalization. But the starkness of the inequality is generally much less now than 100 years ago. When we hear that the top 1% of earners are capturing a record-setting share of the economy — an argument made most famous by Thomas Piketty — we need to remember that this is based on data just for the U.S. and other developed, Anglophone countries. By way of example, in the United States the top 1% earned 19% of all income in 1913 but their share slipped to just 10.5% in 1976, only to double to a astonishing 20% in 2014.

The experience is markedly different in continental Europe and Japan, where the top echelon started in 1910 with a similar share to the tycoons of the U.S., declined in a similar way, but since then saw little or no increase. As a share, the top 1% in these countries earn about half of what they did 100 years ago. This is part of the global pattern where inequality has been declining, because many more in the developing world have emerged from poverty.

Moreover, inequality matters to much more than income. Half of all of the welfare gains from 1960 to 2000 come from the fact that we live much longer, healthier lives. In 1900, we lived to be 30 on average; today, we live to 71. A century or so ago, medical breakthroughs actually increased inequality, whereas today these are increasingly extended to almost everyone. Over the past 50 years, the difference in life expectancy between the world’s wealthiest and poorest countries has dropped from 28 to 19 years. Research shows that inequality in lifespan today is lower than it has been for two centuries.

Education inequality has also declined globally. In 1870, when more than three-quarters of the world were illiterate, access to education was even more unequal than income. Today, more than four in five can read — and the illiterate are mostly older people, while younger generations have gained unprecedented access to education.

Inequality is certainly important, not the least because too much can reduce growth and stifle social mobility. It needs to be tackled, but we should be wary of overhyped claims that skip the incredible developments made in reducing the global ranks of the truly impoverished and narrowing the gaps on income, education and health.

Bjorn Lomborg is director of the Copenhagen Consensus Center, author of The Skeptical Environmentalist, Cool It, and The Nobel Laureates’ Guide to the Smartest Targets for the World 2016-2030, and a visiting professor at Copenhagen Business School."

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