On Tuesday, Oxfam International released a report on the global distribution of wealth, and how that distribution is increasingly concentrated in the hands of a very small wealthy elite.
However, the report includes the following chart showing the share of global wealth belonging to the top 1% and the bottom 99%. Except there is a big problem: linear extrapolation.
Linear extrapolation is the process of taking what looks like a linear trend in one time interval and then trying to predict what will happen in the future under the assumption that the trend will continue to behave the same way.
This kind of extrapolation can be a bad idea!
Oxfam noted that, from 2010 to 2014, there was a roughly linear increasing trend in the share of wealth held by the top 1%. On average, the top 1% added about one percentage point each year to their share of global wealth during that time period.
Based on this, Oxfam went on to project that increase out to the end of the decade, with the somewhat stunning prediction that by 2016, the top 1% would control more wealth than the entire bottom 99%.
Predicting the future is really hard. Trends do not always continue or stay linear, and extrapolation is in many cases very uncertain.
So it’s entirely possible that the 1% will keep adding that one percentage point each year out until at least 2020, but then it’s also possible that they won’t!
Maybe there will be a stock market crash that wipes out the savings of a bunch of billionaires. Maybe wage growth will become broader over the next few years and make it easier for the 99% to save. Maybe the rate at which the top 1% accumulates wealth will accelerate and they will own 90% of the world’s wealth by 2020.
Who knows? But we certainly can’t say that the trend of the last five years will continue in an orderly linear fashion for the next six.