My good buddy Michael Story posted the following tweet this morning:

World Income Inequality: The poorest 5% of Americans are richer than the richest 5% of Indians marginalrevolution.com/marginalrevolu…

— Michael W Story (@MWStory) June 6, 2013

Which started a little debate as to what ‘wealth’ means.

Which of these following 4 people do you think is the ‘wealthiest’?

a)      A person who earns £100k per year but due to circumstances has no outgoings. They pay no tax, no mortgage or rent. Their food is paid for. Every penny of gross income is disposable income.

b)      A person who earns £100k per year but due to circumstances has (reasonably) unavoidable outgoings in excess of £100k per year. Their net income is below zero.

c)       A person who has no income but has gross assets worth £1m. They have liabilities (debts etc) in excess of £1m. They must generate income from or divest themselves of assets in order to live including servicing liabilities.

d)      A person who has no income but has gross assets worth £1m. The assets are entirely unencumbered. They have no liabilities. They must generate income from or divest themselves of assets in order to live.

Many articles, including the one linked in the tweet above treat gross income as synonymous with wealth.

They are not.

Wealth is a measure of net assets, not of gross income. To conflate the two is pure hyperbole. Just because one has a high paying job or living in a big house does not make one wealthy.

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