The Financial Times ran an article recently, called The billionaire boom: how the super-rich soaked up Covid cash, that analyses Forbes magazine’s annual rundown on what the world's billionaires are up to.  The Forbes rundown comes out on April 6 each year, so this year it’s about how the billionaires are weathering this devastating pandemic.  The bottom line is that they are doing very well. 

This is a summary of some of the interesting results of this analysis:

• The world’s central banks have injected $9 trillion into the world economy to keep us going during the pandemic.  In the same one-year period the total wealth of the world’s billionaires rose by $5 trillion to $13 trillion – a seventy percent increase. The rest of us got the other $4 billion.

• The number of the world’s billionaires has increased from 2000 to 2700 in that year, – a 35% increase. 

• As a random specific example: Elon Musk’s share of the world’s wealth went from $25 billion to over $150 billion in that year.

• In 20 countries considered in the analysis billionaires not only increased their own wealth, but also increased the proportion of their collective wealth relative the GDP of their country.  Russian Billionaires topped this metric – their share of Russia’s GDP rose by 9% from 23% to a final share of 34% – the greatest relative increase to the greatest ultimate share of their nation’s wealth.  

All of this indicates a huge wealth inequality issue, and, while that’s interesting, does it matter? 

Perhaps once upon a time wealth inequality didn’t matter because Earth was so unpopulated with humans and so under-exploited that anyone who wanted more could just go and take it, without greatly affecting any other person or our environment, because there was plenty of everything to go around, and we weren’t really very good at taking a lot.  That hasn’t been the case for a long time now because there are so many of us, and so many of us have such a great capacity to make a big impact on each other and on Earth – essentially, the only way to get excessive amounts of wealth now is to work out ways to take it from someone or something else.

Wealth may seem like a relatively abstract concept, but wealth represents access to the Earth’s resources, which all living thing on Earth should have a right to share.

Activists on the “progressive” side of ideology talk about resolving this inequality through taxation.  That may be part of the solution, but what we need to do is to find out what characteristics of our society, economy, and finances facilitate this imbalance in the first place, and then reconfigure those characteristics so that this unfairness doesn’t happen.

The Financial Times report provides us with one of those characteristics when it’s writer says that in rich countries there is no focus on “…addressing the fundamental driver of the market, and thus the billionaire boom: easy money pouring out of central banks.”  The Financial Times report then goes on to say “…wealth inequality is likely to continue widening until the monetary spigots (central bank money) are turned off.” However, this is only so because of the way that that money is created, and distributed.  Using different methods of money creation and distribution will result in very different outcomes.

Another of the characteristics of our society, economy, and finances that leads to wealth inequality is the way that we create new money.  

Most (around 97%) of the new money that facilitates our economic activity and the growth in our economic activity is created by commercial banks.  The banks create our money when they create debt with loans.  When the loans are repaid the original money and the debt cancel each other out and disappear, but because more money is paid back to a loan than was originally borrowed due to interest, some money remains in circulation.  This money represents the growth in our economy, and it always go to the banks and their owners.  

This defacto right to create our money supply give banks first access to all the growth in our economy.  Finding a better way to create new money could distribute this economic growth more equitably, or, better still, allow us to create an economy that doesn’t need to grow at all.  

There are undoubtedly other drivers of inequality embedded in the way we operate our global economy and finances – if you discover any, put them in the comments below!

You can find related posts here:

wealth inequality

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