SOMEBODY TOOK TOO MUCH EXTASYNTAGMA!

Twitter friends alerted me this morning to a new batch of delusion being peddled by the pub crawl crowd in Greece. Readers will recall that pub crawl theories are a reference to one of the best analogies I’ve seen so far of Greek debt repayment delusions, originally reposted here:

When you’re having the time of your life and suddenly the lights go on and you’re told the party is over, what do you do? Someone pipes up and says: ‘why not go to the bar next to my place and keep this up?’ And the crowd goes ‘Yeeeah!’

We’ve tried getting Indiana Jones to bring back the stolen Nazi gold. We’ve tried free bailouts from the Russians, the Chinese and even the Swiss (WTF dude?). We’ve tried inventing nonexistent oceans of oil and gas, diamond deposits criss-crossing the land, pools of pure gold and uranium and of course LOL-ium¹³⁸, the radioactive isotope of LOL-ium found only in Greek defaultnik blogs, which causes permanent stupidity and whose half-life is a billion years.  Now that this crap has failed to catch on we come, finally, to the final pub, the one whose name is never far from the tip of the populist's tongue – the selective abolition of property rights.

Enter economist Dimitrios Kazakis, a recent darling of the Greek Indignados, who shot to fame with this video (titled: THE BEST ECONO-TECHNICAL ANALYSIS EVER MADE ABOUT GREECE, whatever ‘econo-technical’ might mean), which has gone floppily viral like an elderly streakers’ club. I was amazed actually because despite his abhorrent politics he generally sounded reasonable enough to me. Not any more. 

In short, Kazakis has written a post arguing that our debt problem could be substantially reduced if not eradicated by taxing the wealth of high-net-worth individuals in Greece. For data, he draws on the Credit Suisse Global Wealth Databook, which readers may recall from my half-finished scenario page here, though cunningly he’s omitted any hyperlink to the original so that his readers may reach their own conclusions. Anyway, I’ve included it above and in the comments section.  

With a grand flourish, Kazakis reveals that, according to Credit Suisse, private wealth in Greece is close to 300% of GDP, or an absolute $897bn as of 2010. This he pretends to find shocking but actually, since wealth is a stock figure and income is a flow figure it’s fairly normal. If anything, given that the average economically active life of a Greek person spans decades, it’s only fair that accumulated wealth should be a multiple of GDP. That has been the way of every economy since the industrial revolution.

Anyway, back to the wealth issue, and the CS report. Turn to p. 72, do a little population math, and you will see that of the total household wealth in Greece, a net $162bn as of 2010 ($339bn assets minus $176.5bn liabilities) was in financial assets, and the remaining $736bn was in non-financial assets. This, by the way, represents a 72% rise in private wealth per adult between 2000 and 2010.

Naive readers will predictably recoil with shock at the massive numbers. It must be the rich weighing this upwards. He must know what he’s talking about, look at how big his numbers are! Actually, at under $100k, mean adult wealth in Greece is equivalent to a modest house owned between two people. And home ownership in Greece is a staggering 84%.

This is where, pumped up on hopium, or perhaps Extasyntagma, Kazakis bids a fond farewell to reality by assuring his readers that:

...these data are derived from private wealth management firms and refer only to those with enough wealth to merit management by professional asset managers. This means that this wealth total does not include all of those who hold some bonds by way of savings, or some real estate for their security in old age. The data we provide refer to about 60 thousand Greek residents and this refers to assets held at home (whether liquid or illiquid), which appear nowhere and are registered nowhere. 

I am tempted to add: ‘Trust me, I’m an economist.’

Actually, as it happens, he either failed to read the report properly or is lying deliberately. You can tell that the 897bn figure refer to the whole population by looking at pg. 84 and multiplying mean wealth per adult with the number of adults to derive the same 897bn figure. Moreover, Credit Suisse do explain, in pp. 11-14, where their data on Greece come from. For financial assets and liabilities, it’s actually Eurostat, whose tables do make for interesting reading.   

Table 1: Greek household financial assets (in millions of Euros)

Table 2: Greek household financial liabilities (in millions of Euros)
 


CS’s estimates also rely on extrapolations of publicly available data, using a power law function to simulate the tail end of the wealth distribution – the ultra rich. Credit Suisse are so unconvinced of the quality of their country-by-country estimates of the wealth of high net worth (HNW) individuals (their target audience) that they simply refuse to report on them. In fact, they only seem willing to report estimated numbers (using the methodology described above or international figures at the super-aggregate level. They make these points explicitly in the report, so to assume that Greece has been an exception is a little disingenuous. 

So to summarise, Kazakis has either misrepresented his data in order to support a conclusion he was always going to get to anyway, or has been blinded by his prejudice into seeing only what he already believed: that we must seize the assets of high net worth individuals. Why not just say that and be done with, sparing us the amateur dramatics?

Something good did, however, come out of this.

With this admittedly misguided post, Kazakis has scored a spectacular own goal, exposing one fact which, to my profound embarrassment, I had not thought to check. You see, as you can tell by glancing at pp. 84 to 86, both Argentina and Equador, the poster-children of the defaultnik movement in Greece, have more unequal distributions of wealth than Greece, as measured by the Gini coefficient of wealth distribution. So does Chavez’ Venezuela, the darling of carefree populists. So do Communist China and Vietnam, who are nobody’s darlings in Greece but at least they seem to be making socialism produce some gains for the actual people.  This is not to say that Greece’s distribution of income or wealth is optimal (a lot of it is still driven by systemic distortions supported by the state) but if the premise is that it is suboptimal because it is extremely unequal, then that premise needs be revisited. Bear in mind here that CS has an incentive to over-estimate, not under-estimate the concentration of wealth in Greece and indeed in all countries as extreme inequality makes more money for the wealth management division.

In fact, since we’re talking defaults again, it appears to me that, out of 13 countries that were in foreign-currency default in the past decade as some would have us do right now, ten now sport wealth gini coefficients worse than Greece’s (source). - Note: some people seem to be getting confused here. The Gini coefficients comes from the CS paper cited by Kazakis. It's only the default info that comes from the source. PLEASE read the blog properly before commenting.

Perhaps they were even worse to begin with, but my take on this is slightly different. My take on this is that default is followed by massive inflation (yes, trolls, that's what happens when you leave a hard currency for a softer one, especially if it's a good idea in terms of competitiveness), and inflation is a cross-subsidy from savers and wage earners to investors (the cleverer ones at least, but then the richer ones can afford cleverer asset managers too). In a more financially developed country like ours the effect would be heavier, not lighter.

And as one of my commentators points out below, other countries usually held up as exemplars, like Denmark or Sweden, both absolutely kick-ass countries by the way, also have more unequal wealth distributions than Greece. So do places like the UK, the US etc, where it could be argued that a lot more wealth is stashed offshore because the financial system is so much more developed. In fact, as another less approving commentator points out, some inequality can be the result of innovation and enterprise and is probably acceptable.

To rephrase: the Greek wealth distribution is actually pretty equal by global standards. And that's that really. 

A note on the Gini coefficient: 

As per one comment made below, a Gini coefficient is a property of a statistical distribution. There is a wealth Gini, an income Gini (which some people have used in critiques to this article), a longevity Gini and in fact a Gini coefficient for just about anything you can describe through a statistical distribution.So let's please try not to confuse the matter. Credit Suisse's Gini coefficients refer to wealth; because a lot of the consumption of the typical household is fixed, savings rise disproportionately with increased income, and therefore income Gini coefficients tend to be much lower than wealth Gini coefficients. As readers of this blog know, Greece's income Gini, despite being almost half the wealth Gini, makes us a very unequal country in income terms. 


For further reading on how Greek fiscal policy affected income (but not wealth) inequality measures in Greece, check out this post if you haven't already.



UPDATE: Kazakis has issued a Call for the Immediate Formation of a United People's Front (Ε.Πα.Μ.). Good luck.