The retirement costs that are rising faster than Social Security benefits

October 15, 2015 - The Washington Post

It’s official: Tens of millions of retirees receiving Social Security benefits will not get a raise next year. The situation comes up any time inflation is low, a shift that was driven largely by low gas prices this year.(1)

This marks the third time in the last six years — the last two years were 2010 and 2011 — that benefits will stay flat for retirees. But retirement experts say the measure of inflation that is used to calculate changes to Social Security benefits, the Consumer Price Index for Urban Wage Earners and Clerical Workers, doesn’t accurately match the expenses typically faced in retirement.(2)

Some costs that are counted heavily in the index, such as gas and transportation expenses, don’t matter as much for retirees who are no longer commuting. Other expenses that are a major part of a retiree’s budget, such as Medicare premiums, aren’t counted at all in the index. Many retirees have found that their bills — including health-care costs, housing and utilities — have been climbing

faster than Social Security benefits.(3)

For example, Social Security benefits grew by 43 percent between 2000 and 2015, according to calculations from the Senior Citizens League. Over that same time period, Medicare Part B premiums have grown by 131 percent. Monthly housing costs rose 44 percent for people who own their home and even faster, 56 percent, for renters. The price of a gallon of heating oil used in boilers rose 159 percent and the price of electricity has increased by 63 percent. The cost of basic land line phone service has grown by 52 percent.(4)

Of course, some of the expenses that have been rising for workers

and are counted in the inflation index — such as college tuition and rent — may not cause as large a burden for retirees.(5)

Still, people receiving Social Security benefits have seen their buying power fall by 22 percent since 2000, according to an estimate from the Senior Citizens League. Average Social Security benefits have grown to $1,166.30 a month in 2015 from $816 in 2000, according to the report. But retirees would need a monthly benefit of $1,418 to have the same purchasing power they had when they first retired, the survey found.(6)

That gap exists partly because the cost of living increases that have been offered over that time period have been mostly modest, Johnson said. Last year’s raise, for instance, was just 1.7 percent.(7)

The Downsides of Cheap Corn

August 13, 2014 - The Washington Post

This year hasn't been kind to the U.S. agricultural sector.

Just ask John Deere, the world's largest manufacturer of farming machinery. The company reported a 15 percent plunge in profit for

its fiscal third quarter compared with the previous quarter on Wednesday.

Tractor sales, which are often used as a barometer of agricultural sector health, have been especially weak in the United States. Deere's equipment sales fell by 6 percent in the third quarter, and are expected to tumble by another 8 percent in the fourth quarter. And next year isn't likely to prove any more promising. Deere is already forecasting an even tougher 2015—the company expects to sell even fewer tractors than it will by the end of 2014. After years of sustained growth, the company has now seen its sales fall in each of the first three fiscal quarters of 2014—and each time significantly.

The struggles of one of the country's largest farming equipment suppliers isn't so much an isolated business dip as it is an ailment emblematic of the farming industry at large. America's entire agricultural sector, as it happens, is having a pretty mediocre 2014 (and equally mediocre feeling about 2015, for that matter).

Industry-wide sales are slated to fall by more than 6 percent this year.

And U.S. farmer profits are expected to plummet by nearly 27 percent in 2014 after several years of historic highs, according to USDA estimates from earlier this year.

The dip is almost entirely due to pinched crop sales, which are expected to fall by more than 12 percent this year, after falling by just over 3 percent in 2013. If that holds, U.S. crops will generate

just under $190 billion in 2014, or almost $35 billion less than in 2012.

But American corn and soybean farmers aren't suffering because they're struggling to grow corn and soybeans; rather, they're seeing the repercussions inherent in producing too much of them. "If you look around the country, it's pretty hard to find a bad corn crop right now," Gregory Ibendahl, associate professor of agricultural economics, said in an interview. This year's corn crop, as it turns out, is going to be the largest in history, according to USDA estimates. The same is likely to be true of 2014's soybean output (paywall).

"The problem is actually corn and other crop prices," Ibendahl said. "They're too low right now."

Healthy American harvests are driving prices down significantly. Corn, wheat, and soybean prices have fallen by 35 percent, 12 percent, and 13 percent, respectively, this year, and are forecast to fall even further in 2015.

That's too cheap for American farmers' liking. In some cases, the weak prices are even causing farmers to sit on their produce until prices improve. "Either through permanent or temporary storage, you're going to see huge quantities going into storage," Scott Irwin, professor of agricultural and consumer economics at University of Illinois, told the Associated Press on Wednesday. In others, farmers are selling their crop, but at severely discounted rates that border on being unprofitable. 

Broadly speaking, record harvests are rarely bad news. "As a farmer, you can't do anything about prices," Ibendahl said. "All you can do is try to produce as much as you can in any given year." Large stockpiles of corn today should give way to commensurately large cash piles of profit down the road, even if it means storing much of it until prices recover.

But low prices can be devastating, especially if they sustain themselves over long periods of time. "If you're a farmer facing continual low prices, you might have to take some land out of production." Ibendahl said. "Somewhere along the line you might even reach a point where you have to go out of production."

The U.S. farming sector is not quite there yet—the point at which those farms that are most affected can no longer afford to stay in business—but that doesn't mean there isn't potential for such a scenario. "I think it [low prices] will continue for a lot longer than most people think it will," Ibendahl said. American farmers certainly hope that doesn't prove to be the case; nor do tractor manufacturers like Deere.

How Obama’s Tobacco Tax Would Drive Down Smoking RatesApril 11th, 2013 - The Washington Post

President Obama's proposal to nearly double the federal tobacco tax would help fund a universal pre-K program. And, if history is

any guide, it would likely have a marked impact on driving down the country's smoking rates.

"Increasing the price of tobacco is the single most effective way to discourage kids from smoking," CDC director Tom Frieden told reporters Tuesday afternoon. "We estimate this would result in at least 230,000 fewer kids smoking than would have smoked if the tobacco tax does not go into effect."

Researchers have conducted over 100 studies that have "clearly and consistently demonstrated that higher cigarette and other tobacco product prices reduce tobacco use," Frank Chaloupka, a professor at the University of Illinois in Chicago, writes. While tobacco is an addictive substance, demand tends to be surprisingly elastic: Price increases have reliably shown to decrease cigarette purchases.

The Congressional Budget Office recently  looked at  what would happen if the country implemented a 50-cent per pack tax on cigarettes. It estimates, given the research we have on tobacco taxes, that the price increase would lead to 1.4 million fewer smokers by 2021.

Many of those gains would be concentrated among younger Americans, who would take up smoking at lower rates:

A few years after the hypothetical tax increase took effect, the number of 12- to 17-year-olds who smoked cigarettes would be about 5 percent lower than it would be otherwise, the number of 18-year-old smokers would be 4.5 percent lower, the number of 19- to 39-year-old smokers would be almost 4 percent lower, and the number of smokers age 40 or older would be about 1.5 percent lower.

The CBO data suggests that a cigarette tax is more successful at reducing tobacco use among shorter-term smokers, vs. older Americans who may have been smokers for a longer period of time.

Even among those who don't fully quit, tobacco taxes do appear to effect the intensity of smoking. A 2012 study in the journal   Tobacco Control  interviewed thousands of smokers over a time period where states increased their tobacco taxes. It found that the most intense smokers — those who smoked 40 or more cigarettes per day — saw the steepest decline in cigarette consumption.

"The dramatic reductions in daily smoking might be driven,at least in part, by heavier smokers’ desire to reduce the number of cigarettes they smoke per day," lead study author Patricia A Cavazos-Rehg writes. "This could be because of their comorbid health problems and/or advice from influential persons (eg, doctors/friends/family) to try to quit and/or reduce smoking."

Small vs. large: Which size farm is better for the planet?

September 2, 2014 - The Washington Post

There’s a kind of farm that has caught the imagination of the food-conscious among us. It’s relatively small, and you know the farmer who runs it. It’s diverse, growing different kinds of crops and often incorporating livestock. It may or may not be organic, but it incorporates practices — crop rotation, minimal pesticide use, composting — that are planet-friendly. Customers are local restaurants, local markets and us: shoppers who buy into a farm shareor visit the farmers market.

There’s a lot to like about that kind of farm, and advocates believe it’s the pattern for what our agriculture ought to look like. The vision of small, diversified farms feeding the world, one community at a time, is a popular one. But is it a viable one?

I talked with a passel of people who either study (agricultural

economist) or live (farmer) this issue, and there were a few ideas that generated enough consensus that I’m willing to call them facts:

1. Small, diversified farms are less efficient than large ones. Which means that food grown on them is more expensive. Marc Bellemare, an assistant professor in the University of Minnesota’s department of applied economics, calls farmers market produce “luxury goods,” and Tim Griffin, director of the Agriculture, Food and Environment program at Tufts University’s Friedman School of Nutrition Science and Policy, explains the dynamic simply: economy of scale. “As the farms get larger, it’s easier to invest in labor-saving machinery, technology and specialized management, and production cost per unit goes down,” he says. It’s Econ 101.

Even John Ikerd, professor emeritus of agriculture and applied economics at the University of Missouri and an outspoken advocate of the idea that small organic farms ought to feed the world — an idea Bellemare calls “wishful thinking” — acknowledges that we’d need many more farmers to make that happen, and that food would

be more expensive. How much more expensive is tough to estimate. Advocates of small-and-local tend to say not much (Ikerd guesses 6 to 8 percent), and skeptics tend to say quite a bit. It would undoubtedly vary significantly by region; areas that are densely populated, where land is expensive, or that have lousy weather, where food is hard to grow, would have higher prices.

2. Small, diversified farms bring benefits to their communities. I’ve never talked with anyone who thinks incorporating agriculture into communities is a bad idea.  Pretty much everyone seems to believe, as I do, that there’s value in having a place where people can take kids to pull a carrot out of the ground or come face to face with a pig. Local agriculture can contribute to a sense of community and keep spaces open.  It’s a reminder to everyone that food doesn’t just appear, and that it’s only because somebody else is growing it that we’re freed up to be accountants or mechanics or scientists. Or journalists.

3. Local’s market share is small. Very small. Under 2 percent small. And the farmers market share is just a fraction of that. Although farmers’ direct sales (through markets, farm stands

and community-supported agriculture programs, or CSAs) tripled from 1992 to 2007, from $404 million to $1.2 billion, they leveled off afterward, growing to only $1.3 billion from 2007 to 2012 — despite a large increase in the number of farmers markets during that time, from 4,685 in 2008 (there’s no 2007 data) to 7,864 in 2012. That’s 0.3 percent of total agricultural sales.  Expand “local” to include sales that go through channels to local restaurants and markets, and the figure is larger: $4.8 billion in 2007, the last year for which data is available, but still just over 1 percent of total farm sales. (The USDA is planning to release new data at the end of September, and I’ve seen indications that the number will increase.) 

4. Farmers selling directly to their customers aren’t making a living. The USDA defines “small” as a farm with gross sales under $50,000, and 82 percent of the farms selling directly meet that definition. But the majority — 56 percent — don’t have even $10,000 in sales. These are clearly not operations that support farmers, and perhaps not the best pattern on which to plan the future of our agriculture. 

5. Farms pollute, and large, chemical-intensive commodity farms have damaged the environment. According to the EPA, agriculture is the biggest source of pollution of lakes and rivers, and the recent shutdown of Toledo, Ohio’s, water supply because of toxins produced by bacteria is Exhibit A for agriculture’s environmental impact. That doesn’t mean that all large farms pollute, or that no small farm does, but when you have tens of thousands of acres of a two- or three-crop rotation, with chemical fertilizers and pesticides as standard operating procedure, there

are bound to be problems. (There are also animal welfare issues, but I’m leaving that important topic for another day and focusing on crops.)

6. Large industrial farms grow primarily corn and soy, which consumers buy as meat and processed foods. And there’s a strong argument that those foods are making us fat and sick. But that’s not the farmers’ fault. They grow what the market demands.  If we want to fix that, and I think we should, we’d be better off talking to the government, which determines subsidies; food manufacturers, who turn crops into what we actually eat; and consumers, who vote with their wallets.

Those are the major points, and although obviously each is complicated, in aggregate, they boil down to this: Small farms are inefficient but are more likely to grow healthful foods and might be more environmentally friendly, while large farms are sometimes environmentally unfriendly but raise large amounts of food efficiently and affordably. 

The idea that we should replace the large, polluting farms with the small, diversified farms ignores what might be the best solution: Get the large farms to stop polluting.

There are some hopeful signs that it’s already happening. Cover cropping and no-till farming, which help improve soil health and reduce runoff, are on the rise. Recent droughts have underscored the importance of building up organic matter, which retains water, in soil. 

The kind of farm that doesn’t get talked about, and that may combine the best of small and large, is what economists call “the ag of the middle.” One of those farms, on 2,500 acres in southern Minnesota, has been run by Matt Eischen’s family for generations. Eischen rotates sweet corn and peas, which are contracted to become Birds Eye frozen vegetables, with field corn and soy. Growing peas, which go in early and mature in 60 days, sometimes allows him to double-crop his land.  He samples 1.5-acre parcels and adds only the fertilizer that each parcel needs to support the crop he’s intending to grow there. He practices no-till, and he plants grass strips in low-lying areas, which act as a filter for any rainwater running off the fields.  In the fall, he puts cattle out in the fields to eat the cornstalks, and he uses animal manure and crop residue to build organic matter in his soil. No, it’s not like the farmer growing 10 acres of vegetables just outside town, but neither is it the stuff of Chipotle commercials.

As a small farmer, I see both sides of small.  It’s immensely gratifying for my husband, Kevin, and me to bring people out to see our oysters, to show them the different growth stages, to describe how we bring them from pinheads to market size. Our visitors tell us that tasting an oyster right on the farm is a compelling, memorable experience. But our size means that we do many jobs in a way that is time-consuming and labor-intensive. Take tumbling, which we do to remove barnacles. Bigger operations have stainless-steel tumblers that can cost thousands of dollars. We use a ’70s-era cement mixer Kevin found on Craigslist. And, like many small farmers, we drive a truck that’s well past the first blush of youth, and an 80-mile round trip in a truck that gets 14 miles to the gallon, all to drop off 2,000 oysters

at our wholesaler . . . well, you do the math.

Small and large both have benefits. Saying we need both isn’t some kind of namby-pamby, can’t-we-all-get-along compromise. It’s the optimal system, with each kind filling a different demand.

What if advocates on each side focused on getting their own house in order? If you’re in the small camp, work on efficiency. Perhaps you can reconsider organic’s natural/synthetic line in the sand, which increases costs without benefiting either customer or environment.  Down the line, think about incorporating genetically modified crop varieties that are disease- or drought-resistant. Find ways to cut back on waste. And those in the large, why not make some of the basic organic-style practices, like cover cropping and no-till, standard? Consider a target level of organic matter in the soil, to cut back on water use. How about strengthening the conservation practices required for farms to receive federal dollars, even linking them to results like runoff reductions or increased organic matter?

Ultimately, we all vote with our wallets, every day. The best way to get an environmentally sound system that grows healthful food is to buy healthful food from environmentally sound farms. And it doesn’t have to be farm stand kale. It could be frozen peas. 

Oil prices have nosedived. Why aren’t

airfares doing the same?December 25th, 2014 - The Washington Post

Oil prices are down almost 50 percent from their peak this year, and jet fuel has plunged 33 percent since last December. Given energy costs consume almost a third of airline operating expenses, shouldn’t we expect airfares to decline as well? In short, don’t hold your breath. As one might expect, airfares react more quickly to a rise in the price of a barrel of oil than to a decline. As economists would say, the prices are sticky on the way down. Long-term contracts, a lack of competition and profit maximization all play a part, and airlines aren’t in any hurry to give up that extra income at a time when seats are already packed for the holidays.  In the U.K., there’s some good news. The government said this week that airfares have begun to decrease along with the lower fuel costs. Could the same thing happen on this side of the Atlantic? (Paragraph 1)

No incentive to cut fares

The numbers don’t look good so far. The price of an average airline ticket climbed 1.63 percent this year through October, compared

with a 6.96 percent decline in energy prices over the same period, according to Consumer Price Index data. And even as the decline in oil prices accelerated in recent months to a five-year low, carriers haven’t cut their airfares as a result, according to George Hobica, founder of airfarewatchdog.com: “Airlines are going to use this windfall to buy new planes, refurbish terminals … there’s no incentive to reduce prices,” he said. “In the past, when fuel goes down, airfares don’t.” (2)

Inflation-adjusted airfares have increased in three out of the last four quarters for which data are available, while oil prices have declined in all four, on a year-over-year basis, according to U.S. government data. In the second quarter of this year, average airfares were up 2.5 percent from a year earlier, compared with a 0.8 percent decline in the price of oil. According to the International Air Transport Association, jet fuel constituted 30 percent of airlines’ total operating costs in 2013, and the price of it was down 33 percent at the beginning of December from a year earlier. All else being equal, that means airline operating costs are about 10 percent lower than they were last year. (3)

A few key facts

Let’s look at three facts we can glean from an analysis of the historical data from the Department of Transportation. First of all, oil prices are much more volatile than airfares. Second, looking at the quarterly data, the two move in the same direction only about two times out of three. Third, when airfares and oil prices do move in the same direction, on average a 17 percent change in oil price is associated with a 1 percent shift in average airfares. This implies

that a 50 percent drop in the price of oil should yield a 3 percent fall in fares. Whether airlines will actually pass those lower fuel costs on to the consumers will depend on their energy hedging strategies and the intensity of competition in the industry. (4)

Fuel hedging, which involves signing contracts that keep the cost of fuel fixed for a designated period of time, makes sense if the airline expects prices to rise. If an airline hedges, and the price of fuel falls as in the present situation, the carrier will find itself paying more for fuel than it should. And it can be assumed that many airlines are in that situation now, meaning that even though prices are down, their fuel costs may well be above the market rate. European carriers have already begun ending their hedges as early as this summer, according to Bloomberg. And it seems U.S. carriers are following suit. This suggests the airlines are indeed already taking advantage of the drop in jet fuel prices and as a result simply fattening their profit margins, rather than lowering airfares. (5)

Competition and collusion

And that can be explained by the state of competition in the industry, one of only two things that typically cause airfares to decline, according to Hobica (the other being a recession). Competition among the major carriers in the U.S. is insufficient to create incentives for passing the fuel cost savings along to passengers. The mega-mergers and consolidation over the last decade have left the U.S. market with only four large airlines, plus a few smaller carriers such as Alaska Air and JetBlue. (6)

While one might think that four rivals is enough to create a competitive landscape, the fact that the airlines interact continually and operate in so many markets can lead to what economists refer to as tacitly collusive behavior. In other words, there’s soft (little or no) competition over prices but not explicit price fixing. Moreover, mergers have substantially increased the number of routes in which the major airlines are competing with one another. While it might seem like that would lead to more competition and lower prices overall, in fact, economic studies suggest increased so-called multimarket contact can lead to collusion. That is, the airlines would keep prices artificially high rather than try to undercut one another with cheaper fares out of fear their rivals will harm them in another market where they both compete. (7)

Are the mergers to blame?

This kind of soft price competition might also be responsible for the airlines’ unwillingness to get rid of fuel surcharges. At the very least, we can assume airlines view the current depressed oil market as temporary and would only consider cutting their fares if energy prices remain low for an extended period of time – a year in my opinion. Overall, I remain cautiously optimistic that the current plunge in oil prices will eventually result in a drop in the cost of air travel. Any decline, however, will almost certainly be modest given the reduced competition in the industry. Indeed, whether fares do fall over the coming quarters will provide compelling testimony as to whether the U.S. Department of Justice was right to grant approval to all those mergers in the first place. (8)

Why we’ve been hugely underestimating the overfishing of the oceansJanuary 19th, 2016 - The Washington Post

The state of the world’s fish stocks may be in worse shape than official reports indicate, according to new data — a possibility with worrying consequences for both international food security and marine ecosystems. A study published Tuesday in the journal Nature Communications suggests that the national data many countries have submitted to the UN’s Food and Agriculture Organization (FAO) has not always accurately reflected the amount of fish actually caught over the past six decades. And the paper indicates that global fishing practices may have been even less sustainable over the past few decades than scientists previously thought. The FAO’s official data report that global marine fisheries catches peaked in 1996 at 86 million metric tons and have since slightly declined. But a collaborative effort from more than 50 institutions around the world has produced data that tell a different story altogether. The new data suggest that global catches actually peaked at 130 metric tons in 1996 and have declined sharply — on average, by about 1.2 million metric tons

every year — ever since. (Paragraph 1)

Catch reconstruction

The effort was led by researchers Daniel Pauly and Dirk Zeller of the University of British Columbia’s Sea Around Us project. The two were interested investigating the extent to which data submitted to the FAO was misrepresented or underreported. Scientists had previously noticed, for instance, that when nations recorded “no data” for a given region or fishing sector, that value would be translated into a zero in FAO records — not always an accurate reflection of the actual catches that were made. Additionally, recreational fishing, discarded bycatch (that is, fish that are caught and then thrown away for various reasons) and illegal fishing have often gone unreported by various nations, said Pauly during a Monday teleconference. “The result of this is that the catch is underestimated,” he said. So the researchers teamed up with partners all over the world to help them examine the official FAO data, identify areas where data might be missing or misrepresented and consult both existing literature and local experts and agencies to compile more accurate data. This is a method known as “catch reconstruction,” and the researchers used it to examine all catches between 1950 and 2010.  (2)

Ultimately, they estimated that global catches during this time period were 50 percent higher than the FAO reported, peaking in the mid-1990s at 130 million metric tons, rather than the officially reported 86 million. As of 2010, the reconstructed data suggest that global catches amount to nearly 109 million metric tons, while the official data only report 77 million metric tons. This news can be interpreted as both good and bad news. On the one hand, “it means that fisheries are more important than we think,” Pauly said — in other words, when catches were at their highest, they were producing more food for the world than scientists previously thought. This is a plus for global food security in the authors’ eyes. Overfishing and the subsequent decline of the world’s fish stocks can be a threat to the food security of cultures that rely heavily on fish — but Pauly suggests that if we implement better management techniques in the future that allow these stocks to replenish themselves, we may be able to feed more people than we thought, as the new data suggest. On the other hand, the higher catch numbers also suggest that fishing has been even more unsustainable in the past than scientists thought. And the world is now suffering the consequences, as the authors point out. (3)

Not a fishy decline

Their second major finding was that fish catches have been sharply declining from the 1990s up through 2010 — much more severely than the FAO has reported. At first, the authors thought that these declines might be due to increased restrictions by certain countries on fishing quotas in recent years. But when the researchers removed those countries from their calculations, they found that the catch data was still caught up in a downward trend. “Our

results indicate that the declining is very strong and the declining is not due to countries fishing less,” Pauly said during the teleconference. “It is due to the countries fishing too much and having exhausted one fish after the other.” The data indicate that the largest of these declines come from the industrial fishing sector. To be clear, the research is not meant to assess the state of the world’s fisheries, Pauly added — but, nonetheless, the study does raise some important questions about fisheries management moving forward. (4)

The authors suggest that, in the future, the FAO might consider requiring nations to submit catch statistics separately for both large-scale and small-scale fisheries in order to ensure that small-scale fisheries don’t fly under the radar. They also point out the importance of stock rebuilding — that is, enacting fishing quotas to cut down on overfishing and allow fish stocks to replenish themselves. Such action may become even more important in the future, as additional factors — most notably, the effects of climate change — place even more pressure on global fish stocks, Pauly noted. “In the future there will be another mechanism that will begin to play a role [in catch declines] — that is global warming — and it will be very difficult to separate from the effects of fishing,” he said. (5)

So while a few countries have already implemented fishing caps, he predicted that the world will continue to see a sharp and continual decline in catch until better practices are enacted worldwide. And this will be important to consider, not only for the health of the oceans, but for the health of the millions of people worldwide who depend on fish for their food and their

livelihoods. With good management, though, there’s room for optimism, Pauly suggested. “The fact that we catch far more than we thought is, if you like, a positive thing,” he said during the teleconference. “If we rebuild stocks, we can rebuild to more than we thought before. Basically, the oceans are more productive than we thought before.” (6)

.

You might be among the world’s richest

people and not realize itJanuary 21st, 2016 - The Washington Post

Most people these days know that global wealth is unequal, and becoming more so. But the latest statistics that illustrate these trends are still mind boggling, no matter how you look at them. There are lots of ways of comparing the inequality of wealth -- which is defined as people's assets, like their savings and property, minus their debts. One is that the world's richest 1 percent has more wealth than the rest of the globe combined, according to data from Credit Suisse. (Paragraph 1)

A perspective on wealth

Another is that, in 2015, just 62 people in the world had the same wealth as the poorer half of humanity – 3.6 billion people, according to a new report by Oxfam, the antipoverty organization, which makes calculations based on the Credit Suisse data. These 62 people are very, very rich, to be sure, but it's also true that the global bottom half is desperately poor. And for that reason, who really counts among the world's richest -- the top 100, the top 1 percent, the top 10 percent, etc. -- is a matter of perspective. It depends on whether you're judging yourself against your neighbors, your fellow citizens, or the entire world's population. Compared with the rest of the world, a middle class American with a little bit of wealth looks quite privileged. (2)

To be among the wealthiest half of the world last year, an adult needed to own only $3,210 in net assets (minus debts), according to the data. To be in the top 10 percent, a person

needed to have only $68,800 in wealth. To be in the top percentile, the threshold climbed to $760,000, according to Credit Suisse. According to the Federal Reserve, the median American family had $81,000 in net worth in 2013. To get an idea of this inequality, you can try visualizing the global wealth distribution like a pyramid: (3)

The base comprises adults with less than $10,000 in wealth. This is the bulk of the global population -- 71 percent, to be exact, who altogether own only 3 percent of global wealth, according to Credit Suisse data.

The next level up, with wealth of $10,000 to $100,000, contains 21 percent of the world's population, but has 12 percent of its wealth.

The next level, from $100,000 to $1 million, has just 7.3 percent of the population and about 40 percent of the wealth.

And at the very top of the pyramid are those with over $1 million in wealth. This group contains only 0.7 percent of the world's adults, but collectively they own 45 percent of the world's assets, says Credit Suisse. (4)

Distortion of global inequality

And that inequality has worsened in recent years. According to Oxfam, the wealth of the richest 62 people has risen by more

than half a trillion dollars since 2010, while the wealth of the poorer half has stagnated. Not everyone embraces these figures. Journalists Ezra Klein and Felix Salmon critiqued Oxfam’s figures last year, with Salmon actually calling them “crap.” A main part of the critique is that, in analyzing the world's wealth, the Credit Suisse data subtracts debt from the picture. As a result, the poorest portion of the world population includes some people in developed countries who have taken on debt to, for example, go to graduate school or start a business – not the people who you would usually think of as the world's most destitute. In the graph below, those people make up the triangle in the upper-left – North Americans who are among the world’s poorest people, since they actually have negative net worth. Critics argue that these debtors drag down the overall wealth of the world's poorest people and distort the picture of global inequality. By the numbers, they are the world's poorest people, but their ability to take out loans and go into debt is actually a sign of relative privilege. (5)

Source: James Davies, Rodrigo Lluberas and Anthony Shorroks, Credit Suisse Global Wealth Databook 2015

But how much of global wealth do these indebted people really represent? I reached out to Tony Shorrocks, the lead author of Credit Suisse’s Global Wealth Databook, and Deborah Hardoon, the lead author of the Oxfam report, which draws on Shorrocks' data. They both said that while there are rich-but-indebted

people on the lower end of the spectrum, it doesn’t really change the overall picture. According to Shorrocks' calculations, there are 2.4 billion adults (excluding kids) in the bottom half of the global wealth distribution, and 108.6 million of those adults have negative wealth. The chart below shows how the wealth and debt of the world’s bottom 2.4 billion adults looks graphically, with negative wealth (or debt) shown in blue and positive wealth shown in red. (6)

Source: Calculations by Anthony Shorrocks, Global Economic Perspectives

As you can see, there is a lot of debt in high-income countries on the left, but little debt in middle or low income countries. And the overall debt of the global bottom half -- the blue areas in the chart above -- do look substantial compared to the red areas. The net debt of the world's bottom half comes to $844 billion, says Shorrocks, which drags down the net wealth of the bottom half from $2.3 trillion to $1.5 trillion. That might seem like a lot. But compared to the wealth held by the richer half of the globe, it’s peanuts. According to Shorrock, $844 billion is only about one-third of 1 percent of the world's total net wealth. (7)

The big picture

That's a lot of numbers, but the basic lesson is this: Because global inequality is so extreme, the bottom half of the global wealth distribution is only a tiny amount of the world's wealth. So even if you disregard the debt of the bottom half entirely, the

big picture stays largely the same. If you remove the $844 billion debt from the chart above, says Shorrock, the wealth of the bottom half rises to $2.3 trillion, which is still less than 1 percent of total global wealth. (8)

In that scenario, it would take the wealth of about the world's 100 richest people to equal the wealth of the bottom half of the globe, instead of Oxfam's original calculation of 62 people, says Shorrocks. “My conclusion is that the treatment of those with negative wealth has little impact on wealth inequality worldwide, although it can be important for particular countries (e.g. Norway, Denmark),” Shorrocks writes. Hardoon, the author of the OxFam report, agreed. “Even if we ignore the bottom decile (which of course includes many people that are poor and in poor countries), this does not affect our overall finding,” she says. The researchers at Credit Suisse write that the study of global household wealth is still in its infancy, and that their data is incomplete.  The concept of adding up the wealth of different parts of the global population and comparing them to each other isn't a perfect one. But it does give you an idea of just how skewed global wealth really is. (9)

 

E.U. launches $2 billion plan to keep

Africans from migratingDecember 16th, 2015 - The Washington Post

NAIROBI — The European Union on Wednesday announced the start of a $2 billion initiative to curb illegal migration from Africa, an ambitious program that aims to tackle the root causes of a historic flight of Africans to Europe. The first $325 million in projects introduced Wednesday include efforts to increase employment in the migrants’ home countries and to tackle human trafficking in places such as Ethiopia and Somalia. (Paragraph 1)

Much of Europe’s attention has been focused on the nearly 800,000 Syrian, Iraqi and other asylum-seekers who have entered Europe this year via Greece. But the number of people from sub-Saharan Africa crossing the Mediterranean has jumped, too: About 130,000 made the journey in 2015, compared with about 70,000 last year, according to the International Organization for Migration. They were driven from their homes by poverty and conflict, and attracted by the opportunities to reach Italy from nearby Libya, whose Mediterranean coast has been virtually

unpatrolled since the 2011 overthrow of Moammar Gaddafi’s government. (2)Will the trust fund control migration?

The $2 billion E.U. Emergency Trust Fund for Africa was created last month to “address migration, mobility and forced displacement through concrete action,” said the E.U.’s commissioner for international cooperation and development, Neven Mimica. Analysts were skeptical about whether the plan would have a major effect, given the range of reasons that so many Africans embark on the risky journey north. In Eritrea, one of the continent’s top sources of refugees, residents flee a repressive government and forced military service that can last for decades. In Somalia, they are escaping the terrorist group Al-Shabab and brutal fighting between clans. In much of the continent, they are leaving countries with limited job opportunities and seemingly endless poverty. “If you’re looking at changing the way Africa’s economies work, [$2 billion] isn’t going to go very far,” said Tuesday Reitano, head of the secretariat of the Geneva-based Global Initiative Against Transnational Organized Crime. (3)Few details of the new projects were available Wednesday. But according to an E.U. statement, they include a plan to develop employment opportunities in regions of Ethiopia from which migrants come; an effort to help Somali refugees return to parts of their country that are stable; and an initiative to combat migrant smuggling in the Horn of Africa. Many African governments have done little to curb migration to Europe, in part because migrant remittances can comprise a significant portion of their countries’ GDP. Last year, workers from sub-Saharan Africa sent home more

than $11.2 billion from Europe, according to the World Bank. (4)

In recent months, the E.U. has debated attacking smugglers’ ships and conducting intelligence-led operations in places such as Niger, on the migrant trail to Libya, but such plans have rarely been enacted. Efforts to improve law enforcement in key cities along that trail have also had limited success. In Agadez, Niger, for example, a Post reporter found this summer that a military vehicle was leading a convoy of smugglers and migrants into the Sahara once a week. Many analysts say that the surge in migrants from Africa reflects the continent’s most entrenched problems — including civil wars and economies that have not created enough jobs for a rapidly growing population. “Internal African policies tend to push people out,” said Mohamed Yahya, the Africa regional program coordinator for the United Nations Development Program. “Will the trust fund end this? I don’t think so.” (5)Under the E.U. plan, 23 African countries deemed the “most fragile and those most affected by migration” will be eligible for the funds, which would be disbursed through 2020. Eritrea was included on the list, despite calls from activists to withhold funding because of its poor human-rights record. “The fast-tracked approval of today’s new projects proves that this is not business as usual,” Mimica said. (6)Risky and restrictive

There was no sign that the E.U. is willing to dramatically expand the number of work visas it offers to sub-Saharan Africans — something sought by many officials on the continent who see their compatriots taking risky, expensive journeys because the legal route is nearly inaccessible. Nearly 3,000 people have died

crossing from Libya to Europe this year, and most of them are thought to be sub-Saharan Africans. “The legal channels right now are extremely restrictive,” Yahya said. “For an African to get a visa to go to Europe is the most humiliating process.” The E.U. has said it will expand the number of university scholarships it offers to sub-Saharan Africans, but that there would likely be a limited increase in the total number of visas. (7)

Other officials in Africa called the trust fund a welcome start, but highlighted just how massive the need is in places where asylum seekers are making the choice to leave for Europe or elsewhere. “To meet only the most basic needs of displaced persons in North Nigeria would require $1 per person per day — a staggering $2 million in total per day,” wrote Bukola Saraki, president of the Nigerian Senate, in the Financial Times this month. He added that the cost of rebuilding northwestern Borno state, which has been ravaged by radical Islamist group Boko Haram, has been put at $1 billion. (8)This article was originally published on The Washington Post. Read the original article.

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