The Private Wealth within Nations, Now and in the Future

IN FOCUS, CAPITALISM, ECONOMICS, 4 Feb 2019

Eric Zuesse – TRANSCEND Media Service

29 Jan 2019 – The annual Credit Suisse Global Wealth Report is the gold-standard for estimates of private wealth around the world. The latest is Global Wealth Report 2018. It’s at: https://www.credit-suisse.com/

Some aspects of this report (as in previous years) raise more questions than answers, but any informed estimations of where things stand economically within the world’s nations and even globally, has to take seriously what it reports. Following are key excerpts from — and my thoughts about these excerpts of — the current report:

Page 6 of 60:

The report’s only mention of “Libya” is here: The “Change in household wealth per adult 2017–18” in Libya was +$22,000 per household, second only to the #1 largest, which was U.S., +$23,000. Unfortunately, no indication is given anywhere in the report as to what the percentage-increase was in either (or any) country. That’s the far more important figure. Though that figure cannot be calculated for Libya, it can be calculated for U.S., the country that was shown here to rank #1. On p. 40 of this report is shown that in the U.S., the “Wealth per adult over time” was rising at the same high percentage during 2012-2018 as it had been during 2002-2006, and is now a bit over $400,000. (The report says nothing whatsoever about Libya except what was just mentioned here, and the figures from which they calculated even that weren’t cited, much less mentioned.) The U.S. Census says that the average U.S. “household” is 2.58 people. If that’s 2 adults and .58 children, then the mean average U.S. household owns around $800,000, which would be the house etc. and other assets minus debts. If the comparable figure in Libya is, say, $80,000 (it’s just a guess, and probably way too high), then in 2018 the average Libyan household’s wealth during 2018 rose around 25%-30%, whereas in the U.S., it rose around 3%. Consequently, either something absolutely stunning happened in Libya during 2017-2018, or else this report made a huge error somewhere. That same page (40) asserts, as perhaps explaining America’s continuing rise: “The United States has a high proportion of assets (72%) reported as financial.” Around 30% of assets were real estate, which typically is comprised of the household’s house. (However, this would be only the value of the real estate that’s in excess of any existing mortgage or other debt upon it.) The assumption that the economists who wrote this report are making is that one of the reasons why the average mean wealth in U.S. is rising a higher dollar-amount than any other country’s is that an unusually large percentage of the privately held wealth in U.S. is in the form of investment securities such as stocks and bonds, and an unusually low percentage of it is in houses. They are assuming that the way to grow an economy is to “financialize” it. They are economists, and that’s the way most economists think, because economic theory supports that viewpoint. But is economic theory itself supported by the empirical evidence in economics? It is not. This was shown, for example, in the crash of 2008. But economists apply that theory anyway.

page 9:

Wealth inequality [worldwide]

While the bottom half of adults collectively owns less than 1% of total wealth, the richest decile (top 10% of adults) owns 85% of global wealth, and the top percentile alone accounts for almost half of all household wealth (47%). The shares of the top 1% and top 10% in world wealth fell significantly between 2000 and 2008: the share of the top percentile, for instance, declined from 47% to 43%. However, the trend reversed after the financial crisis. The share of the top 10% was little affected. But in 2016 the share of the top 1% rose back above the level we estimate for 2000. The trend in the share of the top 1% partly reflects the trend in the share of financial assets in the household portfolio, which fell during 2000–08 and then began to rise after the global financial crisis, raising the wealth of many of the richest countries, and of many of the richest people. 

The share of financial assets peaked in 2015 and has been declining since then. In previous reports, we predicted that wealth inequality would follow suit – possibly with a slight lag – and there is evidence that this is now the case. The share of the top decile and the top 5% remains at the same level as in 2016, while the share of the top 1% has edged down from 47.5% to 47.2% according to our best estimate.

That “edge” “down from 47.5% to 47.2%” is far too tiny to constitute any ‘evidence’ confirming that “wealth inequality would follow suit” from “The share of financial assets … declining since” 2015. The economists who did the report are simply hoping there, that economic theory isn’t trash and can be relied upon for making econmic predictions. But that is hoping upon something that has already been empirically proven to be false, many thousands of times.

Further informative on this page is “Figure 5: Share of top 1% of wealth holders since 2007, [eleven] selected countries, % of wealth”:

Russia has the world’s highest inequality of the eleven countries analyzed: 55% to 65% of private wealth being owned by the nation’s richest 1%

Second-worst is India: 49-54%

Third is Brazil: 38%-45%

Fourth is U.S.: 39%-41%

Fifth is Germany: 29%-34%

Sixth is China: 28%-33%

Seventh is Canada: 24%-26%

Eighth is UK: 20%-25%

Ninth is Italy: 18%-24%

Tenth is France: 17%-23%

Eleventh is Japan: 17%-18%

However, here’s a better indication of these nations’ total inequality, and not merely the top 1% versus everybody: it’s the mean average wealth per adult, divided by the median average wealth per adult. Inequality is shown by the mean even if (as in Germany, for example) the inequality is more the result of the top 10% than of the top 1%. These ratios, of the mean divided by the median, will be shown here as calculated by me from pages 40-54 in this report. The higher this ratio is, the more the given nation is unequal in per-person wealth:

Russia=7.3

India=5.4

Brazil=3.9

U.S.=6.6

Germany=6.1

China=2.9

Canada=2.7

UK=2.9

Italy isn’t shown on these numbers.

France isn’t shown on these numbers.

Japan=2.2

page 11:

Our estimates suggest that the lower half of the global population collectively owns less than 1% of global wealth, while the richest 10% of adults own 85% of all wealth and the top 1% account for almost half of all global assets. Since the global financial crisis, wealth inequality has trended upward, propelled in part by the rising share of financial assets, and a strengthening US dollar. These underlying factors appear to be waning, so that it seems more likely that wealth inequality will fall in the future rather than rise. 

So, here they are saying that in addition to “the share of financial assets in the household portfolio” causing wealth-inequality to rise, a “strengthening US dollar” has also been causing wealth-inequality to rise. The strength of the U.S. dollar, as against all other currencies, is — and ever since the 1970s has been — propped up by the Sauds setting the value of oil in dollars. Consequently, the economists who wrote this report are here alleging that the private agreement, between Nixon and King Saud (and sustained by both governments ever since), has helped to cause the soaring wealth-inequality globally after 1980. This is a very interesting assumption. But one hopes that the report’s data are less unreliable than the report’s assertions (such as that) are.

page 41:

[China] Growth champion 

While the United States is still far ahead in terms of total household wealth and the number of citizens in the top wealth categories, China has advanced so rapidly this century that a wealth gap that once appeared unassailable could vanish within a generation. It is China, rather than the United States or Japan, to which much of the developing world looks for a model, inspiration, and often assistance, in wealth creation.

Whereas financial assets were 72% in U.S., they were only around 35% in China. Would the economists who did this report be therefore assuming that China’s future economic growth will be hobbled by its relatively low percentage of private assets that are financial? If so, might that assumption be based upon flaws in existing economic theory?

page 43:

[Russia] Changing Fortunes

According to our estimates, the top decile of wealth holders owns 82% of all household wealth in Russia. This is a high level, greater even than the figure of 76% for the United States, which has one of the most concentrated distributions of wealth among advanced nations. Also interesting is that it is higher than the top decile share of 62% in China. The high concentration of wealth in Russia is also reflected in the fact that it is estimated to have 74 adults who are billionaires, despite its modest level of wealth per adult. 

(According to Forbes, there are 585 Americans who are billionaires.)

Normally, extreme wealth-concentration is found in kingdoms and other dictatorships. For a nation to depend mainly upon the aristocracy (the extremely wealthy) for growth is to produce an economy that will fail and whose only significant possibilities for growth are conquests of foreign lands. (Of course, for aristocrats to steal more from the public in their own country would be another way to do that, but it wouldn’t increase their country’s growth; and, besides, it would greatly increase the likelihood of a revolution in their country, which might kill them; so, foreign conquest does have an inevitable appeal to any aristocracy — the appeal of “take it from people elsewhere” instead of “take it from your own countrymen.” Ever since at least 1898 in the U.S., foreign conquests by the military or by coups have increasingly been the aristocracy’s chief method for growth.)

Wealth-inequality started soaring in the U.S. when Ronald Reagan became the President in 1981 and has continued soaring ever since, so that the U.S. now is among the least-equal countries. And yet, American growth also continued, despite the growing inequality, and it has continued because increasing portions of that growth are now in financial assets, and also because the U.S. dollar has remained the world’s reserve currency. Being the reserve currency means that the U.S. Government can have huge deficits and soaring debt, and that the economy can have enormous trade-deficits every year, all without the foreign-exchange-rate of the dollar being adversely affected. This globally unique advantage that the U.S. and especially its aristocracy have is the foundation-stone of America’s current leadership in the world. This unique advantage exists because in the 1970s Richard Nixon switched the dollar off the gold-standard and onto the oil-standard, in that agreement with the King of Saudi Arabia — the global oil-champion. That model of national economic growth is dependent upon the world’s wealthiest person’s, the Saudi King’s, continued alliance with America’s aristocracy. It has caused America’s wealth-concentration to soar. And, since virtually only the aristocracy and their millions of hirees (such as lobbyists, bankers, lawyers, accountants, and propagandists) have the wherewithall to ‘invest’ (gamble) in financial assets, the U.S.’s soaring inequality in both income and wealth is the result.

America’s increasing wealth-inequality is unlikely to reverse as the authors predict. Instead, the tendency toward revolution, which has accompanied the increased inequality, can only continue. And any further efforts by America’s aristocracy to extract even more from their fellow Americans will only increase yet further that revolutionary tendency. In fact, this is the reason why America’s billionaires need, even more than before, to conquer foreign lands, and to extract from people abroad even more advantageous terms. It’s safer that way, for any aristocracy which is approaching the limit of what it can extract from its own public without sparking a revolution. This is why the frequency of America’s coups and invasions is likelier to rise, before America’s median wealth will rise (such as the report’s authors assume). Unless America increases its coups and invasions in order to increase its mean wealth, America’s median wealth will, at best, only stay stuck where it is, or else go down (which would produce a revolution here).

The difference between America and Russia, then, is that Russia’s currency, even after the year 2000, isn’t the world’s reserve currency. Russia isn’t even aiming to make it so. However, if the world now is bifurcating into a U.S. bloc and a China bloc, then Russia might serve, at least at the start, as being China’s Saudi Arabia. China would then receive natural resources from Russia, and would pay in its currency, and Russia would buy gold on the open market, with that currency. Beyond this initial period, non-carbon energy-sources might be booming, and gold might again become the world’s natural reserve-currency. Then, at that stage, if not earlier, Russia should be concentrating increasingly upon developing its human capital. And, beyond that human-capital-buildup stage, Russia would then be the high-tech and arts and sciences leader of the world. All of this is, of course, presuming that neither WW III nor global warming will have intervened to prevent it.

The biggest down-side to America’s having the world’s reserve currency is that it has produced an aristocracy of unequalled arrogance. Therefore, in the short term, America is likelier to become increasingly violent and more overtly a police-state than a more equal — and more equal-opportunity — society. Because of America’s aristocracy, America’s glory-days are over. As any sort of “city on a hill,” America’s best days are in its past, rough though those were. America’s long-term future is bleak. It starts that now already with the world’s highest percentage of its people in prison — the highest percentage in prison of any nation on the planet. If this means that it’s a police-state, then it already is leading the world as being that.

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Investigative historian Eric Zuesse is the author, most recently, of  They’re Not Even Close: The Democratic vs. Republican Economic Records, 1910-2010, of Christ’s Ventriloquists: The Event that Created Christianity, and of Feudalism, Fascism, Libertarianism and Economics.

This article originally appeared on Transcend Media Service (TMS) on 4 Feb 2019.

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