The story presently making the rounds in business and economic news is that 62 extremely rich people have as much wealth as 3.5 billion people. It gets worse. In 2010, 388 people had the value of half the world's population. This means wealth is becoming more concentrated in fewer and fewer hands at an alarming rate. Oxfam, an anti-poverty organization based in the UK, is the source of this information.
So, how do many citizens in advanced capitalist societies respond to these kinds of facts, which the economist Massimo De Angelis calls in his book The Beginning of History "horror statistics"? When they appear in the paper or online, they cause for a moment "the same scandal" and "the same outrage," but soon after that, soon after the facts have trended on Twitter, readers "are drawn back into the vortex of [their] daily lives."
But the really big problem with all of this is not so much the apathy of the citizens in high-income countries, or even the middle-class members of middle- and low-income countries. The problem is the way Oxfam presents the information.
It's probably true that the value of the wealth owned by the richest 62 humans in the world is $1.76 trillion. But is this wealth really the same as the wealth of 3.5 billion people? Oxfam seems to believe it is, but they are very wrong in this belief.
The wealth at the top is not the same as the wealth at the bottom. If the wealth at the top vanished, it would be catastrophic politically; if the wealth at the bottom vanished, it would be catastrophic economically. The death of predators like eagles has an impact on an ecosystem, for sure; the death of plants means no ecosystem at all.
What exactly is this politically supported wealth at the top? I will give one example: There was a program that few Americans understand and yet it dominated their lives during the period that saw the monetary worth of 388 mega-rich people shrink to an astounding 62. It is called quantitative easing (QE). What was it all about? Put simply, between 2009 and 2014, the US government injected financial institutions with lots and lots of money (liquidity) through bond purchases.
And why did the government do this? Not so that banks could give loans to businesses with good ideas or plans (this did not happen), but to reflate the value of financial assets that collapsed during the crash of 2008 (watch The Big Short to get a rough idea of this period).
But who owns most of these financial assets? The answer can be found in Thomas Piketty's best-seller Capital in the Twenty-First Century: "Large fortunes consist primarily of financial assets (mainly stocks and shares in partnerships)." Piketty explains that the higher we go up the class ladder, the more and more wealth is composed not of property, or wage-income, but of financial assets. This is why the US government spent so much money propping up financial markets. The worth of the rich would have collapsed if it had not done so.
Bloomberg has the raw facts of QE:
It was the biggest emergency economic stimulus in history and now it’s over. The U.S. Federal Reserve’s once-in-a-lifetime program to buy immense piles of bonds, month after month, in an extraordinary effort to restart a recession-deadened economy came to an end in October 2014 after adding more than $3.5 trillion to the Fed’s balance sheet – an amount roughly equal to the size of the German economy. The bond-buying program, called quantitative easing or QE, had been controversial since its start in 2009, as had the Fed’s decision in 2013 to gradually reduce the monthly economic boost, a plan that became known as the taper.
The American Recovery and Reinvestment Act of 2009, Obama's stimulus package for the general public—money to stimulate the real economy—was not even $1 trillion. (It was $831 billion.)
My point: Much of the wealth that's owned by those 62 people might as well be piles of cash on Mars or swirling about the atmosphere of Venus. Yes, financial assets have real effects, thanks to politics (the Washington/Wall Street revolving door), but they have no other earthly reality. This is precisely why the rich left the real economy in the 1970s, and why the stock markets in New York City (Wall Street) and London (the City) exploded in the 1980s. (The rise of the City to global dominance is indeed called the Big Bang.) The money in the standard economy was just not enough to make the richest folks happy. It has real constraints. It grows too slowly, or stagnates. In fact, if you removed the growth of the financial sector from recent and current GDP-growth reports, you will find the economy under normal conditions grows very slowly.
In Felix Martin's book Money, there is a wonderful story about the pre-colonial monetary system of the people of the island of Yap. They used "stone wheels ranging in diameter from a foot to twelve feet." These stones are called fei. Though they were used to settle debts and so on, they were rarely moved about. Some feis were also never seen. One ended up, we are told, at the bottom of the sea after a boating accident. But the memory of the stone was enough to sustain its value.
Martin quoted William Henry Furness III, an American adventurer at the dawn of the 20th century:
[I]t was universally conceded ... that the mere accident of its loss overboard was too trifling to mention, and that a few hundred feet of water off shore ought not to affect its marketable value ... The purchasing power of that stone remains, therefore, as valid as if it were leaning visibly against the side of the owner's house, and represents wealth as potentially as the hoarded inactive gold of a miser in the Middle Ages, or as our silver dollars stacked in the Treasury in Washington, which we never see or touch, but trade with on the strength of a printed certificate that they are there.
That unseen stone at the bottom of the sea was more real than much of the money the rich of our day claim to have. Money that, by the way, can never be realized and whose fiction can only be maintained politically.
The derivatives market, which by the way includes the credit default swaps at the heart of the movie The Big Short, is valued at more than $500 trillion. The world's GDP is $75 trillion, and probably much less than that if we exclude the surreal effects of inflated financial assets. We do not live on a planet with a $500 trillion economy, but we have a financial market of that size. What kind of wealth is this? Is it the wealth of five Earth-like planets that do not exist? And can we honestly compare this wealth to that of the 3.5 billion people who do live on Earth?
We must dissociate the two forms of wealth, so that the wealth of the super-rich can be seen for it is: so much money on Mars.