Thursday, December 21, 2017

Samuel A. Chambers — The Washington Post “fact checks” Sanders on Wealth Inequality: This is What Ideology Looks Like

Samuel A. Chambers

Samuel A. Chambers is a Professor at Johns Hopkins University. He co-edits the journal Contemporary Political Theory and is series co-editor of Routledge's Innovators in Political Theory. His current research project has the current working title "How to Be a Capitalist."

In a speech given at Westminster College on September 21, 2017, US Senator Bernie Sanders (I-VT) made the following claim: “There is no moral or economic justification for the six wealthiest people in the world having as much wealth as the bottom half of the world’s population, 3.7 billion people.” 

On October 2nd, 2017, The Washington Post’s Nicole Lewis published a fact check of Sanders’ claim, coming to the following conclusion: “Sanders’s statistic, while provocative, is basically meaningless. He earns Three Pinocchios.” To clarify, for the Post “Three Pinochios” entails a “significant factual error and/or obvious contradictions. This gets into the realm of ‘mostly false’” (emphasis added).[1]

What does it mean to conclude—in an “Analysis” piece, not opinion, as the Post emphasizes—in one of the foremost national American newspapers that Sanders’ claim is “basically meaningless” and “mostly false.” And what’s going on when the Post takes the time to make this assertion?

Unlike many tortured statistical claims, the basic facts underlying Sanders’ statement are relatively straightforward. First, according to the Forbes list of billionaires, the top six men in the world have a combined net worth of $462.6 billion. Second, according to the 2016 Credit Suisse Global Wealth Report, the bottom 50% of people in the world hold a combined net worth of $409 billion.[2]

So where does the meaninglessness and the falseness come from? Mainly from the Post’s apparent inability to accept the basic definition of wealth as net worth. Lewis writes: “The Credit Suisse report measures wealth as net worth, or assets minus debts. This means people with burdensome debt and a high income but few assets wind up ranking lower on the global wealth scale than someone with no debt, low income and no assets.” But this is not some idiosyncrasy of Credit Suisse: “net worth = assets – debts” is basically the way all accountants and economists would calculate wealth. Indeed, there is no other viable metric out there, so if you are going to talk about wealth, much less wealth inequality, the measure you have to work with is net worth. But Lewis is convinced that net worth is really skewing things, as she emphasizes in probably the most important line in this analysis: basing wealth on net worth “means a recent medical school graduate in the United States with high earning potential and loads of debt would wind up on the lower end of the scale than someone in India living on $2 a day.” The first thing to say is that of course that is true, for tautological reasons: a person with negative net worth has less net worth than a person with a small positive net worth. 

But Lewis is also, intentionally or not, conflating Sanders claim with a different assertion about the problems of global inequality. In 2015 Oxfam published a report (based on earlier Credit Suisse data) that made claims and even certain problematic projections (based on simplistic extrapolations) about increasing global wealth inequality. Some legitimate economic authorities responded to this report to point out that comparing aggregate wealth levels across countries proves to be tricky business, since it overlooks the fact that the middle class in some countries (e.g. China) are actually doing much better over time than the middle class in others (e.g. Europe and North American).

But anyone who has ever heard Bernie Sanders give a speech knows perfectly well that his major concern and his target audience is the USA. Improvements of the standard of living among wealthier Chinese citizens is not his focus: he is interested in those Americans who are less well off than they were 25 or 50 years ago – and that could be the bottom 25%, the bottom 50%, or arguably even the bottom 90%. To clarify matters, we can reconstruct Sanders’ statement strictly and narrowly within the terms of the USA. What do we find? That the top 10 American billionaires have a total net worth 58% greater than the bottom 40% of Americans combined.[3] Sure, this new American-only stat has extended the number of rich people from six to ten, and it has decreased the number of poor people from 50% (of the global population) to 40% (of the USA), but wouldn’t Sanders’ fundamental political claim still hold, perhaps even more so: there is no moral or economic justification for this distribution of wealth. 

Perhaps none of this would satisfy Lewis who comes at the claim about inequality from other directions as well—though, it must be said, not ones that have much to do with the basic factual claims. Lewis (here again, following other attempts to undermine the implications that some have drawn from the Credit Suisse data) still cannot seem to get over the fact that to measure wealth as net worth means to include a lot of people with negative net worth. As the quote above makes clear, Lewis means to suggest to her reader that Sanders’ claim relies on portraying young doctors as poor. But that raises a question that Lewis fails to even consider: what percentage of those Americans with negative equity actually become future rich professionals? I have yet to locate definitive data that answers this question, but the data we do have on debt in America seems to indicate that most Americans with negative net worth are poor Americans who are most likely to remain poor Americans. It is true, of course, that many wealthy Americans also hold debt (especially mortgage debt), but this is a red herring since those people are not a part of the group with negative net worth. Lewis repeatedly appeals to her reader (usually subtly and implicitly, but nonetheless) to believe that Sanders is factually wrong in his claims about wealth inequality for the reason that so many Americans have negative net worth. Hence she writes: “When the lowest 10 percent of the wealth spectrum, which holds -.43 percent of the global wealth, is removed, the remaining 40 percent of the bottom 50 percent own $1.51 trillion.” Two responses: first, eliminating all the people with negative net worth still means that the wealth held by those in the 10% to 50% range (more than 100 million people) is still only twice that held by the ten richest Americans; second, what, exactly, does it mean to “remove” the poorest 10%? I see why Lewis wants to set them aside to make the numbers look better—although from this perspective she should just have found a way to “remove” the top 1%, which would have solved almost all the inequality problems in one fell swoop—but what is to be done with the millions of Americans we have just “excluded.” I suppose Lewis wishes that they will all turn out to be doctors. 

And that may well be her only hope, because her remaining arguments are misguided and incoherent. Her last gasp is to tell her readers something that was already obvious: Bill “Gates’s wealth is prone to major fluctuations. Sudden changes in the stock market…will affect his bottom line.” Lewis points this out to her readers in order to draw a sharp distinction between, on the one hand, Gates’s financial assets and, on the other, the “nonfinancial assets” held by others, particularly in so-called developing countries. But from the fact that the Credit Suisse report categorizes some assets as “financial” and some others as “nonfinancial,” Lewis draws this conclusion: “the comparisons are mismatched. Gates’s wealth is held in a complex financial system, but his wealth is being compared with nonfinancial wealth, the value of which does not fluctuate (or soar) with the same ease.” 

This statement betrays a fundamental misunderstanding of the nature of capitalism. Real estate and land are no less a part of a “complex financial system” than any stock or bond, or even CDO or CDS. To think that somehow real estate is more “stable” in value than stocks is preposterous in general, but it is especially so for any person who lived through the great housing collapse of 2008. Tell the person who owned a home in Las Vegas in 2007 that nonfinancial assets are not subject to major fluctuations: house prices dropped 63% overall, and for certain condo owners the drop was even steeper. In comparison, the S&P 500 lost 50% of its total value in roughly the same crisis period.[4]

So what is at stake in all of this? By which I mean both, why does the Post “fact check” a relatively straightforward claim about global wealth distribution, and why have I spent the time and energy to fact check the fact checker? One relatively simple answer is that the Post is shilling for its owner, Jeff Bezos—net worth $72.8 billion, good for number 3 on the Forbes list. In an earlier fact check of a Sanders’ claim about inequality, the Post’s Glenn Kessler made the point almost transparently. Sanders had said that from 2013 to 2015 the 15 richest Americans had gained more in total wealth, $170 billion, than the bottom 100 million Americans. Kessler’s response: 1) sure, but sometimes the wealth of the rich goes down too; 2) “about a third of the billionaires became recently rich because of the computer and Internet boom”; 3) “Some of this wealth is quite recent”; 4) Sanders has a net worth of $330,000, so he’s richer than most everyone else too, 5) once again, everyone in the bottom 10% has negative net worth, so they “drag everyone else down.” I briefly rehearse Kessler’s arguments because this fact check concludes by stating as unassailable fact almost exactly what the later analysis will question. Kessler writes: “We agree the wealth of the 15 richest Americans is certainly staggering. Another way to look at it is they have as much net worth as the bottom half of the American population.” Indeed, that is another way of looking at it; it is just the way Sanders looked at it in his September 2017 speech, the one that earned him three pinochios from Lewis. All of which brings me to Kessler’s telling conclusion: “We will leave it to readers to decide if this means the economy is ‘rigged’—or if innovative entrepreneurs simply have the ability today to earn vast sums of money. While Sanders says he wants to make the wealthy pay their fair share, it is worth noting that five members of this group — Gates, Buffett, Ellison, Bloomberg and Zuckerberg — have signed a pledge saying they will give up most of their wealth for philanthropic causes.” It couldn’t be plainer: innovative entrepreneurs earn their money and they plan to give it a way anyway, so don’t worry about it.

But I’m actually less interested in the extent to which the Post is running interference for the third wealthiest man in the world. There is something greater at stake here, something clearly betrayed in the critics’ continued weak attacks on, and deep frustrations with, the idea of net worth. In these retorts here are two elements of net worth as the Freudian symptom in play. First, a large number of those who populate the bottom 10% that Lewis would have us find a way to “exclude” are a newly indebted class. In fact, to give the point some color we can say that today the worst off are not those who have nothing, but those who have less than nothing. Somewhere between 9% to 12% of Americans have negative net worth, and while this is may in fact be temporary for a small number of them, that is surely a tiny minority of the total. For many Americans, negative net worth and a life of debt is the new ordinary. Payday loans, Western Union, and 30% interest Credit Cards are not making record profits from medical students; they are making those profits on the backs of the poor – and today’s poor is the indebted poor.

Second, in calculating and comparing net worth we put ourselves on a slippery slope, because by looking hard at actual net worth numbers we may come to address the elephant in the room. This elephant has already been located, well lit, and dressed for the party, since Thomas Piketty’s publication of Capital in the Twenty-First Century. What is going on in pieces like those by Kessler and Lewis is a concerted effort to refuse to talk about capital. Piketty’s vast collection of historical data shows bluntly what Marx’s analysis of the fundamental logic of capital had revealed almost 150 years before: that capital is a force, and as that force grows and grows it begins to attain an inertial momentum that is almost unstoppable. In this context, let me close with my own stat, one that I hope speaks even more directly to the narrative of self-authored earnings that the Post hopes to bolster. Many of the critiques of claims about wealth inequality are designed to turn our attention away from wealth (which is just so hard to measure and compare) and back to income, a metric that resonates with the narrative about innovative earners making individual decisions. And of course, because they are measuring an annual flow and not a total stock, income numbers are simply much smaller in scale both absolutely and in comparative terms. According to the latest data from the Federal Reserve Survey of Consumer Finances, the median family/household income in the United States in 2016 was $52,700. And the median incomes for the bottom four quintiles of income distribution are as follows: $16,200, $33,100, $54,100, $86,100. After that, the top two deciles move up more steeply: 80–90% is $135,300, and 90–100% is $251,500. Yet, overall, the distances don’t seem that dramatic. 

The same cannot be said for wealth, where the median net worth is $97,300, but the top two decile means look like this: $800,500 and $4,526,600. In other words, while the top decile median income is only five times larger than the overall median income, the top decile mean net worth is 47 times greater than median wealth. Of course, critics of claims about wealth distribution and wealth inequality might just repeat their arguments: net worth and income are two totally different measures, and are simply not comparable. And this ostensible response brings us to the crux of my argument; it helps to underscore the importance of a particular understanding of capital as a dynamic force. The key is this: net worth is not just a spreadsheet accounting of total assets, it is also a potential generator of income. We can, in fact, compare income and capital and we can do so precisely because it is in the very nature of capital to generate an income. It should go without saying that from a specific moment in the present to any moment in the future we cannot predict with any certainty what that income will be; indeed, it is also precisely in the nature of capital that it can fail to earn any income at all, that it can decline in value, that it might even disappear entirely. Be that as it may, we can look to the past within advanced capitalist societies and see quite clearly what sort of income capital generates on average, over both the medium and long term. For example, from 1928 through 2014, the S&P 500 index returned an average of 10% net, or a “real return” of 7% if adjusted for average inflation over the same time period. If we take that 7% and apply it to the top decile median net worth, we see not only that people in that decile have massively more wealth than the median American, but also that their average net worth will generate an annual income of $316,862. 

This brings me to my preferred statistic: the average wealth of the top decile will produce in income annually a sum more than six times the median income. Here’s another: the wealth of the top 1% will generate an annual income 45,000 times greater than the median income of the bottom quintile. None of these numbers call on the powers of compounding interest (a power only available to net worth, not to income), as they are simply one-off calculations based upon the modest assumption of 7% average return. But most high net-worth individuals (i.e. wealthy people) reinvest a large portion of the income that their capital generates, which means that their capital grows and therefore generates an even greater income. Here, then, is just a slightly expanded example. The mean net worth of the top 1% is $10,350,300, which would produce (at 7% return) an annual income in year 1 of $724,521. In year 2, just the income from year 1 could itself be used as capital to produce a year 2 income of $50,716.[5] That is roughly equivalent to the median income of all Americans, and it is produced not from the income on wealth, but from just the income on the income from wealth. 

Net worth matters because wealth matters. And wealth matters because capital matters. It should go without saying that capital matters because the system is called capitalism. It’s not a “free market” system or an “exchange” system or a “competitive” system; it’s a capitalist system, in which the primary driving force, the force that structures, constrains and ultimately (re)organizes the system itself is the force by which capital grows, by which capital begets more capital. This is what the Post does not want anyone talking about. 


[1] For comparison sake, here are two statements from President Trump (then Candidate Trump) that earned the exact same three-Pinochios rating: 1) “The Department of Justice, the State Department and the FBI colluded, got together, to make Hillary Clinton look less guilty” and 2) “I’ve won most of the lawsuits against Trump University.” The former statement is blatantly false based simply on the definition of collusion; as to the latter, at the time of this statement, none of the three cases against Trump University had even been decided, so Trump had won exactly zero of them. 

[2] Indeed, if Sanders had wanted to round the numbers off and make the stat pop just a bit more, he could easily have claimed that the five wealthiest people held as much wealth as the bottom half, since #6 on the Forbes list is worth $68 billion, so the total for the top five would be just a titch under the total for the bottom 50%. 

[3] My “top 10” combines the Koch brothers (tied for #8 on Forbes list) into one entry, and aggregates the three Waltons (15–17) into one as well; this gives a total of $672 billion. The bottom 40% of Americans own 0.5% of America’s total net worth of $76 trillion, or a total of $425 billion. All data here are from the 2016 Credit Suisse Global Wealth Report and from the 2017 Forbes billionaires list. 

[4] Lewis also suggests that the Credit Suisse data is invalid because “Credit Suisse converts all the currencies to U.S. dollars, based on the value of the dollar at the time in question.” But this claim is simply false, as even a cursory reading of the report makes it clear that Credit Suisse sometimes gives data at current exchange rates and sometimes in constant exchange rates, and frequently remarks in detail on when and why the two diverge (Credit Suisse 2016: 15). 

[5] None of this is not to mention that the income generated from wealth is taxed at significantly lower rates than the income from wages, so in net terms the second year income from the income of the mean 1%’s net worth would actually be greater than the net from the median income American. And none of this is to mention the fact the crucial importance of the “Wealth Defense Industry” by which those who hold capital can use the power of the state to protect that capital and its growth (Winters 2017).


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