Innumeracy and Generosity – Don’t be deceived by big numbers

Just a quick note here.  Lots of people today, especially the media, are making a big deal out of Jeff Bezos and his wife’s donation of $33 million for a scholarship fund for DACA Dreamers. For example there’s this CNN article.  Lots of tweets. It’s a nice gesture. It’s definitely a worthy cause – although worthy causes are legion.

My problem is with the intimation that this is somehow a noble sacrifice. The problem here is common in economics data. We get lost in big numbers and get fooled.  $33 million sounds like a lot. To over 99.9% of Americans, it’s a number we can’t really fathom. It sounds like so much money.  Let’s take a closer look. Bezos household net worth – the value of his personally owned assets minus their debt – is estimated at $105 billon (Bloomberg) or $104 billion (Forbes) (source: Google on Jan 13, 2018 ).  That’s billion with a B. Bezos is 54 years old.

The median household net worth for Americans in his age bracket was $100,404 according to the most recent data for 2013/2014 from Census Survey of Income.  The median means there are as many households with more assets as there are with less assets. It’s the middle observation. It’s typical.

So Bezos has pretty close to a million-times larger net worth than the typical household for somebody of his age. He and his wife sacrificed $33 million of their assets to make this donation. On a strict linear scale, that’s the equivalent of the typical household for his age bracket donating $33.  Yep, that’s all. $33.

Bezos’ sacrifice is the equivalent of an ordinary, typical 54-year old giving $33. Actually, it’s less of a sacrifice. Economics teaches us about diminishing marginal utility of income or money. Basically, when you’re rich each additional dollar of income or asset is much less valuable to you than if you’re poor. To a poor person, the $33 means eating or healthcare. When you’re really rich, it’s just another digit you’ll round-off on your financial statement.

I laud the Bezos family for making a donation. It’s a good thing to do. But let’s not make it out to be more noble than it is.  The bottom 20% of households in that age bracket have zero or negative net worth. The single mother with no assets that stuffs a twenty in the Salvation Army bucket at Christmas makes a lot bigger personal sacrifice.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s