These highly skew’d distributions are extremely hard to visualize; you just can not get a feel for how vast the population of “other” is.  I give some examples of that in this previous posting, using people’s names as an example.

The folks that wrote the recent report on the worldwide distribution of wealth take a run at the problem in the usual way; putting the data into various buckets.  For example  they know that 40% of the total wealth of the planet is held by the richest 1% of the population.  We can make a pie chart showing were they live.  They live in the Europe, the US, and Japan.  In this visualization you can’t see the other, i.e. the vast majority of the world’s population, the other 99%; notice how China, India, Africa, etc. are all invisible on this chart.

We could try to get a picture that shows these other folks by making a series of pie charts.  For example we might make ten charts each showing 10% of the world’s population.  For example this next chart shows the richest 10% of the world’s population; and where they live:

Korea, Mexico, Agentia, Brazil showed up; but still no sign of China, India, Africa, etc.    The report’s authors found a way to address the problem by making the chart below.  This chart displays a pile of similar pie charts.  The first pie chart above is the chart you get if you take convert the right edge of the chart below.

So this shows that India, Africa, and “Other Asia-Pacific” house most of the world’s poorest.

But yet the visualization problems remain.  Notice two things.  First, that 40% of the total wealth is held by a tiny tiny sliver running along that right edge.  Secondly, that these regional buckets are very misleading.  Even inside those regions only a very tiny minority of the population is wealthy.  See if you can figure out what slice shape denotes a higher or lower Gini for that region?

I feel duty bound to post about the recently released report on the worldwide wealth distribution put out by the “World Institute for Development Economics Research” at the United Nations University in Finland.  There is little in this report that surprises me.  Wealth is very skewed.  For example: “the study estimates that the global wealth Gini for adults is 89%.  The same degree of inequality would be obtained if one person in a group of ten takes 99% of the total pie and the other nine share the remaining 1%.”

The skew varies widely from country to country.  If there is some central authority in charge, let’s call him Zippy, Zippy might decide to reward some people with more wealth than others.  Zippy might pick any of an assortment of basis for his rewards: talent, birth, luck, effort, beauty, behavior, height, power, etc.  The Gini index is a metric of how big much Zippy decides to reward.  If he hands out no rewards then the Gini index is zero and the wealth is perfectly evenly spread out; if the index is one then he picks on person and given them all the money.
The chart below, derived from table 9 in the report, shows an alternate way to look at what Zippy has done in various countries.  It shows how much wealth the bottom 90% captured.

Zippy likes the rich.  He really likes them in the US and Switzerland.  He’s a bit nicer to everybody else in some other countries, for example in Japan, China, and Spain.

I do like this blog, the world needs more well done ranting.

Through history there has been many ideas about of how to value the future. I particularly love one of these ideas that the interest paid on borrowed money is the compensation you pay the lender for his pain in forgoing the pleasures that money could have purchased him.

In any case modern financial market have numerous schemes to allow you to price a bushel of corn or money at some point in the future. If you borrow money, for example, you pay interest. Interestingly if you borrow money for a year v.s. ten years you don’t pay the same interest rate. Sometimes you pay more sometimes you pay less. If we plot these various interest rates we get what’s known as the yield curve.

There is a very cool applet showing the yield curve for the last few decades in this magazine article.

The shape of the yield curve is a market signal about what people think the economy is going to do next. Short term rates go up when there is lots of demand for cash, i.e. their are lots options for investing your cash that will bear fruit quickly; i.e. the economy is hot. If at the same time the market collectively senses that economy is going to cool down, i.e. there aren’t good long term investments to be made, then the near term cost of money should be higher than the long term cost. That’s the case right now.

Presumably this means that investors have their attention focused on short range opportunities v.s. long range ones. When they look at longer range investment opportunities the see uncertainty and so they put their time into activities that can be wrapped up in a short, presumably more predictable, time frame.

The yield curve is the market signal that tells us what the investor class is thinking about the future; with the consumer spending and confidence tells us what they are thinking. The market signals says that we live in an uncertain world. Who knew?!?