Crimes Against Math And Logic: ECB HFCS Wealth Study Edition

(1) The Bundesbank released a study purporting to show that the Germans are well below average in household wealth in Europe (195K euros per household) and that the Cypriots are the 2nd richest (670K euros per household), despite the Germans having substantially higher GDP per head.   In general, it shows the South to be richer than expected and the North to be poorer. The study is here:

(2) First, let's break it down for basic macro-plausibility.

According to their table 1.1, household size is 2.64 2.04 in Germany and and 2.76 in Cyprus.    So assets per capita are 95K in Germany and 252K euros in Cyprus.

Taking the 81M person population in Germany and 800K in Cyprus and GDP of 2.5T for Germany and 20B for Cyprus, this tells us that:

German assets, in aggregate, are worth 3.1x GDP and Cyprus assets are worth 9.68x GDP -- an utterly implausible 3.01x more valuable per dollar of GDP than German assets.

(2) Some commentators note that the differences might be due to homeownership rates in the South (75-80%) vs Germany (44%).

Um, not really.

At some level, "homeownership rate" in all countries is 100% as SOMEONE owns the home.   And given the nature of residential real estate, that someone is almost always a domestic national and so should be showing up in the statistics (the mean, not the median)

If they are not, then this means: "we undersampled people who own >1 home"

It reminds me of my favorite trick math question:  "Do men or women have, on average, more sexual partners?" (Answer will be provided in a different post)

(3) Others have noted "well, the Germans pay higher taxes."   Also, unlikely to be relevant.   Think about where taxes actually go:

(a) Transfer payments (so that should not change average national wealth)

(b) Salaries of government employees, primarily to domestic nationals (so, again, a transfer of wealth that is solely internal to the country and should not impact household wealth)

(c) CapEx/Infrastructure (harder to measure, but, again, that wealth stays in-country)

Only foreign transfers would impact this calculation and I doubt they are big enough to matter

(4) The only variable that could account for these differences would be if Germans are pouring all their high GDP into consumption, not into savings/investment.

If so, the correct title of the study would be: "Italians, Spanish and Cypriots thrifty savers; Germans profligate consumers"

(5) However, #4, aside, I think the data is not accurate for the purposes it is being used.

Common sense from just walking around Cyprus/Germany tells you that the former is not 2.5x wealthier per-head than the latter.

Given the asset figures relative to GDP, it feels like the German numbers are deflated (aka, important sources of domestic wealth are excluded) and the Cypriot figures are inflated (probably some of those foreign assets in Cyprus are being counted as domestic assets).

Posted on April 10, 2013 and filed under Cyprus.