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September 23, 2022

🎉 Happy Friday, and shana tova to those of you observing the holiday that begins Sunday night. But first, some news about the global state of wealth inequality — and more. Let's go!

Today's newsletter is 967 words, 4 minutes.

1 big thing: Puerto Rico's intersecting crises

Illustration of the Puerto Rican flag falling apart to leave an exclamation point
Illustration: Natalie Peeples/Axios

Even after several years of political and legal battles over how to revive its economy and fix its basic utilities, Puerto Rico continues to careen from crisis to crisis, Axios' Nathan Bomey writes.

Why it matters: The territory and its 3 million residents are caught in a quagmire of financial and infrastructure challenges with a steep human cost — including a 41% poverty rate last year.

Driving the news: Puerto Rico's entire power grid — which has been in bankruptcy for the last half-decade — went down after Hurricane Fiona ripped through on Sunday.

  • Only about 32% of Puerto Rico residents had power restored as of Thursday, while about 3 in 4 were still without clean water, according to Jubilee USA Network, an organization that has advocated for debt relief for Puerto Rico.
  • "Even relatively minor storms can shut down the power grid on the island," Jubilee executive director Eric LeCompte tells Axios. And "the water supply is dependent in many parts of the island on the electrical grid."

The big picture: Debt reduction has helped Puerto Rico by freeing up cash to spend on basic services — but numerous troubles continue to dog the island, including a history of corruption, insufficient revenue, and the ongoing dispute over the prospect of statehood.

  • Puerto Rico exited the largest municipal bankruptcy restructuring in U.S. history earlier this year — a five-year process that resulted in the commonwealth shedding 79% of its debt.
  • But the island's public utility, the Puerto Rico Electric Power Authority (PREPA), remains mired in bankruptcy. The island's federal oversight board said days ago that it's reached an impasse with bondholders over how to restructure PREPA's debt.

Flashback: When Hurricane Maria and Hurricane Irma devastated Puerto Rico in 2017, causing tens of billions of dollars in damages, the territory's ability to provide electricity to its residents collapsed.

  • It took months to restore power, illustrating the depths of PREPA's problems, including accusations of sweetheart deals.
  • In 2021, operational control of the island's grid was transferred to a private operator called LUMA Energy in hopes of improving the dilapidated system.
  • LUMA "has failed miserably," University of Puerto Rico economist José Caraballo-Cueto says, noting that it's led to rate spikes and more blackouts.
  • Local officials are now reexamining the deal, the Wall Street Journal reported Monday.

💭 Our thought bubble: Puerto Rico's financial crisis is sure to continue as long as its population continues to decline. The island has lost hundreds of thousands of residents in recent years — most of them moving to the mainland in pursuit of a better life.

  • When they leave, they take their tax dollars with them — and that means less money for the island to pay its debts and invest in public services, continuing its destructive cycle.

Go deeper.

2. Catch up quick

⚡️ Scoop: Biden officials sour on World Bank head. (Axios)

💷 British pound plunges on new tax cuts. (CNBC)

🏈 Apple Music to sponsor Super Bowl halftime show. (Reuters)

🚐 Amazon hired dangerous trucking contractors, WSJ analysis shows. (WSJ)

3. China's wealth surge

Data: Credit Suisse Global Wealth Report 2022; Note: USD is smoothed to account for exchange rate fluctuations; Chart: Madison Dong/Axios Visuals

The median adult in China is now richer than the median adult in Europe. That's one of the more stunning findings from Credit Suisse's latest Global Wealth Report, Axios' Felix Salmon writes.

Why it matters: It's a sign of the astonishing transformation of the Chinese economy over the past 20 years — and also of the failure of much of Eastern Europe to converge meaningfully on Western standards of living.

By the numbers: China's housing slowdown notwithstanding, wealth in China grew in 2021 both in terms of financial assets, which average $38,248 per adult, and nonfinancial assets (think housing), which grew 13% to $47,382 per adult.

  • Between the lines: The mean numbers are much higher than the median numbers, as always happens in societies with high inequality.
  • The good news globally, however, is that while mean wealth grew by 4.9% in 2021, median wealth grew much faster, at an 8.1% pace. This means that inequality is going down, not up.

4. How countries differ

Data: Credit Suisse Global Wealth Report 2022; Note: USD is smoothed to account for exchange rate fluctuations; Chart: Madison Dong/Axios Visuals

Chinese median wealth, at $26,752, is now more than four times greater than Russia's, at $6,379. But it's still less than a third of the wealth of the median American ($93,271) — and only about a 10th of the wealth of the median Belgian ($256,336), Felix writes.

  • The European median is brought down not only by Russia but also by Bulgaria ($4,486). The poorest EU member, Romania, at $20,389, also ranks below China.

5. Global inequality declines

Data: Credit Suisse Global Wealth Report 2022; Chart: Axios Visuals
Data: Credit Suisse Global Wealth Report 2022; Chart: Axios Visuals

While discussions of global wealth inequality often concentrate on the top 1% or even 0.01%, the big picture — driven in large part by the rise in Chinese wealth — is that wealth inequality has been steadily decreasing for nearly all of this century, Felix writes.

Why it matters: China used to be a poor country. As it became richer, it narrowed the size of the "between countries" wealth gap, even if its own "within country" wealth gap increased.

  • For the past 20 years, increasing equality between countries has had a bigger effect on the overall wealth distribution than increasing inequality within countries.

The bottom line: This trend might not last a lot longer.

  • Once China becomes richer than average in terms of global wealth — something that could easily happen in the next few years — its rising fortunes will no longer have the same effect in terms of reducing global wealth inequality.

6. America's poor see improvements

Data: Credit Suisse Global Wealth Report 2022; Chart: Axios Visuals
Data: Credit Suisse Global Wealth Report 2022; Chart: Axios Visuals

The bottom half of the U.S. wealth distribution is a lot richer now than pre-pandemic, Felix writes.

What happened: Student loans payments were paused, government stimulus checks started pouring in, and if you had housing or stock-market wealth that rose fast.

The bottom line: Just like the millennials, who doubled their wealth in two years, poorer Americans did well for themselves through 2021.

  • What's next: Next year's report will reveal whether this trend survived the inflation of 2022.

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Today's newsletter was edited by Kate Marino and copy edited by Mickey Meece.