The Great Wealth Divide

After clicking on the title of this post, you are probably expecting me to be talking about the gaping chasm between the rich and poor in our society or across the world.

Perhaps I might mention the huge wealth inequality between young and old or the huge differences in wealth levels across different parts of the world.

Well, I am sorry to disappoint you, but I write to you today with a much more balanced and well-informed world view.

You see, I have been reading a book called ‘Factfulness’ by Hans Rosling, a man who dedicated his life to correcting the fundamental misconceptions that human beings have about the world.

I must point out that I am only 1 chapter in, but already the book has changed the shape of my world view about wealth.

In this first chapter, the author points out that the media very much likes to characterise things as two opposite ends of a spectrum. The media also likes to portray the idea of conflict between two groups. Think rich vs poor, good vs evil, small business vs huge corporations, the man on the street vs the government. You get the idea.

The reason the media do this (according to years of academic research by the author) is twofold; 1. Because characterising things using two extremes portrays a sense of drama and excitement, things which get us to consume media and 2. Because human beings love things to be simple and having just 2 options makes things easy to understand.

However, when it comes to wealth and living standards (which is largely the topic of chapter 1), things are not so simple. Hans Rosling advocates that we think of wealth across the world and within countries in terms of 4 different levels and not just two extremes.

For example, at wealth level 1, you are living on around $2 a day and have little in the way of basic human needs. You are unlikely to have shoes and will only eat what you can manage to grow. You then progress through wealth level 2 ($8 a day), level 3 (up to $16 a day) and then level 4 (over $32 a day).

The data shows that the vast majority of people across the world live in level 2 and 3. So while the media characterises this ‘gap’ of wealth and inequality across the world, in fact there is simply a range of different options with most people sitting in the middle, exactly where the media tells us the ‘gap’ is supposed to be.

The same can be said in most individual countries as well. In the UK, the vast majority of people will live in group 4 and some in group 3, but yet our media still tells us of this ‘battle’ between the rich and poor, suggesting that there is a huge chasm between them.  However, in truth, there is no chasm, simply a range of people, most of whom are somewhere in the middle.

If you pick the most extreme examples from a set of data, there is always likely to be outliers and extreme examples, but these represent only a minute percentage of the total sample. What you will find in the vast majority of cases is that there is no gap, no chasm – most people are in the middle.

This manipulation of data is one of the ever-growing list of reasons why the media is not a good source of reliable information about the world (and by extension investments or the health of our economy).

My other gripe with the media is that they like to peddle a largely negative world view. They like to tell us that things are getting worse. However, the data shows that by almost any meaningful measure of human progress, health, living standards and prosperity, the world is getting better. Exponentially, dramatically better.

I have probably not done this excellent book (or the first chapter anyway) justice with my waffle today so I strongly recommend that you read this book.

In the space of 30 pages or so, it is quickly changing my world view and I’m sure it will continue to do so.

"The value of investments and the income from them may fall as well as rise. You may get back less than you originally invested"