A new Oxfam report has highlighted the extent at which inequality continues to grow around the world. According to the advocacy group, just 62 individuals hold as much wealth as the poorest half of the globe.
Shockingly, wealth concentration is well up over the past five years. In 2010, there were 388 individuals that owned more wealth than the poorest half of the world. Today, that figure is down by 85%, suggesting that efforts to bridge the inequality gap are failing.
It can be difficult wrapping ones head around these figures. Fewer than 100 individuals have more wealth than 3.6 billion people. It’s hard to say what’s worse: that there are billions of households surviving on so little? Or that a mere 62 individuals have accumulated all that wealth? Both should make your stomach turn.
The ‘bottom half’ refers to those with fewer than $4,400 in assets. That’s less than what the typical Aussie household comfortably earns in a month.
It’s no surprise that the world has a problem with inequality. We might choose to be oblivious at times, but everyone knows that it remains a deep seated problem with few obvious solutions.
Who, or what, should be blame for our failure in alleviating global poverty and improving inequality?
Blame the faulty system, say Oxfam
The real issue, according to Oxfam, is that the world is running on a broken economic model. Deregulation, privatisation and financial secrecy are all to blame. Collectively they’ve helped the richest 62 people increase their wealth by $1.7 trillion since 2010. Meanwhile, the poorest 3.6 billion have watched their wealth decline by 41% over the same period.
‘The big winners in our global economy are those at the top. Our economic system is heavily skewed in their favour. Far from trickling down, income and wealth are instead being sucked upwards at an alarming rate.’
And while acknowledging that dealing with inequality has had some success, it adds:
‘Yet had inequality within countries not growing during that period, an extra 200 million people would have escaped poverty. That could have risen to 700 million had poor people benefited more than the rich from economic growth.’
But there was little, if any, benefit for the poorest half of the world. Wealth simply went into the hands of the mega-wealthy instead.
To be fair, the number of people living below poverty did halve between 1990 and 2010. Considering the sheer number of people that China and India alone have dragged out of poverty, that’s believable enough. But all these numbers are to be taken with a pinch of salt.
Take for example the World Bank’s definition of what constitutes poverty. If you earn more than US$1.20 a day, you’re officially above the poverty line. Even if we take this figure as an acceptable standard, it does raise some important questions.
For one, the threshold for the poverty line has gone up 25 cents to US$1.25 since 1990. At the same time, the US dollar has lost 60% of its value. So from one point of view, it looks as if there’s been a lot of progress in eliminating poverty. From the other, we’ve actually gone backwards.
Inequality and the central banking credit fix
At the turn of the century, the richest 1% owned 48.9% of global wealth. Yet by 2009, this figure had fallen to 44.2%. That’s a significant decline in the space of just nine years. Especially in the context of the trillions of dollars at stake.
There are now 120,000 individuals worth more than $68 million (US$50 million), according to the World Bank. The number of total millionaires is up by 146% since 2000. As much as 8% cent of these newly-minted rich are from China.
Something has clearly gone wrong.
That people grew richer isn’t the problem in itself. But the Global Financial Crisis rewarded the 1% at the expense of the 99%.
Even worse, the very people who were supposed to stop that happening were enabling it. Who? The central banks, of course. Before we point the finger solely at the richest 1%, let’s consider the role central banks played in allowing this to happen.
What changed in 2009 then?
Well, we know the GFC came. It’s never really gone away either. For all intents and purposes, they kicked the can down the road. And you already know how that happened.
Central banks relaxed monetary policy across the world. Interest rates plunged everywhere. Credit was aplenty. Yet the higher rate of interest in the developed world caused Western capital to flood emerging markets. New millionaires popped up everywhere, from Shenzhen to Lagos.
Global stocks, led by Wall Street, went from strength to strength. The unstoppable rise of Chinese markets between August 2014 and June 2015 is only the most obvious example of this. The Shanghai Composite Index rose 3,000 points to a peak of 5,166. Before the June 2015 rout, the SCI market cap was US$9.7 trillion, some 67% higher than the year prior. Striking it rich in China had never been easier.
Yet even before the GFC, central banks had a hand in creating the crisis.
US interest rates began falling at the turn of the century, right up until around 2006. Rates then flew up to almost 6% just prior to the 2008 credit crunch.
Then, as interest rates peaked in 2007, the stock bubble popped. What resulted was the mortgage crisis that single-handedly destabilised the global economy.
Lesson learned, right? Not quite. The GFC did nothing to shake the confidence of central banks. Interest rates continued falling after the crisis. As central bankers are never slow to mention, they wanted to make sure the recession didn’t turn into a depression. ‘Whatever it takes’ was the prevailing message.
And, as easy credit has a habit of doing, the loose rate policies mostly helped by boosting asset prices. Capital was sloshing around the global system like never before. A lot of people that were already rich got even wealthier. Presumably, many of the 62 people Oxfam identified made the list.
It’s the same story this time around. Rates are at record lows wherever you look. Stocks have gained appreciably since the financial crisis started.
The Federal Reserve lifted rates by a meagre 0.25% in December. Their next move could be to cut rates again, or unleash QE4. Ease lending, flood the world with capital, then apply the brakes. The outcome? The 99% end up worse off, while the 1% gain. Or, in this case, the top 0.00001%.
It may sound hard to believe, but the one-percenters aren’t really at fault. They’re not completely pardoned, but they’re just taking advantage of a good hand. Instead, we should point the finger at the dealer that’s allowing them to gobble up so much wealth.
If you want to be upset with anyone, start with central banks. They’ve created the conditions that have laid the groundwork for widening inequality. Policymakers have played a large part in allowing this to go on. They’re the real culprits.
Contributor, Markets and Money
PS: Interest rates will remain at record lows…until the central banks decide its time for the next wealth grab.
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