July 14 JDN 2458679
How much wealth is there in the world? If we split it all evenly, how much would each of us have?
It’s a surprisingly complicated question: What counts as wealth? Presumably we include financial assets, real estate, commodities—anything that can be sold on a market. But what about natural resources? Shouldn’t we somehow value clean air and water? What about human capital—health, knowledge, skills, and expertise that make us able to work better?
I’m going to stick with tradeable assets for now, because I’m interested in questions of redistribution. If we were to add up all the wealth in the United States, or all the wealth in the world, and split it all evenly, how much would each person get? Even then, there are questions about how to price assets: Do we current market prices, or what was actually paid for them in the past? How much do we depreciate? How do we count debt that was used to buy non-financial assets (such as student loans)?
The Federal Reserve reports an official estimate of the US capital stock at $56.2 trillion (in 2011 dollars). Assuming that a third of income is capital income, that means that of our GDP of $18.9 trillion (in 2012 dollars), this would make the rate of return on capital 11%. That rate of return strikes me as pretty clearly too high. This must be an underestimate of our capital stock.
The 2015 Global Wealth Report estimates total US wealth as $63.5 trillion, and total world wealth as $153.2 trillion. This was for 2014, so using the US GDP growth rate of about 2% and the world GDP growth rate of 3.6%, the current wealth stocks should be about $70 trillion and $183 trillion respectively.
This gives a much more plausible rate of return: One third of the US GDP of $19.6 trillion (in 2014 dollars) is $6.53 trillion, yielding a rate of return of about 9%.
One third of the world GDP of $78 trillion is $26 trillion, yielding a rate of return of about 14%. This seems a bit high, but we’re including a lot of countries with very little capital that we would expect to have very high rates of return, so it might be right.
Credit Suisse releases estimates of total wealth that are supposed to include non-financial assets as well, though these are even more uncertain than financial assets. They estimate total US wealth as $98 trillion and total world wealth as $318 trillion.
There’s a lot of uncertainty around all of these figures, but I think these are close enough to get a sense of what sort of redistribution might be possible.
If the US wealth stock is about $70 trillion and our population is about 330 million, that means that the average wealth of an American is $200,000. If our wealth stock is instead about $98 trillion, the average wealth of an American is about $300,000.
Since the average number of people in a US household is 2.5, this means that average household wealth is somewhere between $500,000 and $750,000. This is actually a bit less than I thought; I would have guessed that the mythical “average American household” is a millionaire. (Of course, even Credit Suisse might be underestimating our wealth stock.)
If the world wealth stock is about $180 trillion and the population is about 7.7 billion, global average wealth per person is about $23,000. If instead the global wealth stock is about $320 trillion, the average wealth of a human being is about $42,000.
Both of these are far above the median wealth, which is much more representative of what a typical person has. Median wealth per adult in the US is about $65,000; worldwide it’s only about $4,200.
This means that if we were to somehow redistribute all wealth in the United States, half the population would gain an average of somewhere between $140,000 and $260,000, or on a percentage basis, the median American would see their wealth increase by 215% to 400%. If we were to instead somehow redistribute all wealth in the world, half the population would gain an average of $19,000 to $38,000; the median individual would see their wealth increase by 450% to 900%.
Of course, we can’t literally redistribute all the wealth in the world. Even if we could somehow organize it logistically—a tall order to be sure—such a program would introduce all sorts of inefficiencies and perverse incentives. That would really be socialism: We would be allocating wealth entirely based on a government policy and not at all by the market.
But suppose instead we decided to redistribute some portion of all this wealth. How about 10%? That seems like a small enough amount to avoid really catastrophic damage to the economy. Yes, there would be some inefficiencies introduced, but this could be done with some form of wealth taxes that wouldn’t require completely upending capitalism.
Suppose we did this just within the US. 10% of US wealth, redistributed among the whole population, would increase median wealth by between $20,000 and $30,000, or between 30% and 45%. That’s already a pretty big deal. And this is definitely feasible; the taxation infrastructure is all already in place. We could essentially buy the poorest half of the population a new car on the dime of the top half.
If instead we tried to do this worldwide, we would need to build the fiscal capacity first; the infrastructure to tax wealth effectively is not in place in most countries. But supposing we could do that, we could increase median wealth worldwide by between $2,000 and $4,000, or between 50% and 100%. Of course, this would mean that many of us in the US would lose a similar amount; but I think it’s still quite remarkable that we could as much as double the wealth of most of the world’s population by redistributing only 10% of the total wealth. That’s how much wealth inequality there is in the world.