Interesting article by David Wessel in the free section of the WSJ today: Rich Get Richer, But Not as Fast As You Think.
Its a follow up to the Federal Reserve’s recent triannual study we discussed last week, Stagnant Net Worth for Typical US Family.
When looking at who has what share of America’s Net Worth, a few data points leap out: The Richest 10% owns 69.5% of the assets, up from 67.4% in 1989.
Note that the Fed survey explicitly excludes folks on the Forbes 400 list of the very wealthiest Americans. I believe the Fed eventually breaks down the latest numbers on the richest one million families, the top 1%. That group of Super Rich 1% holds about one-third of the total wealth in the nation; The next 9% also holds about a third.
The group below the top 10% –the 75% – 89.9% slice — owns 17.6% — slightly more than their population percentage might suggest numerically. This group contains the heart of the middle class (and upper middle class), and as we have seen, they have been shrinking.
Wessel writes:
"The Federal Reserve does a lot of things. It sets interest rates. It issues dollar bills. It regulates banks. And once every three years it tells us how well America’s rich are doing and if they’re getting richer.
The word from the Fed’s new Survey of Consumer Finances: The rich are doing extremely well. But their slice of the pie doesn’t seem to be growing as fast as one might expect in light of the persistent widening of the gap between annual incomes of rich and poor.
American families had net worth — the value of houses, cars, 401(k) plans, stock portfolios and saving accounts minus mortgages and other debts — of $50 trillion in 2004, according to the Fed. Its estimate is based on surveys of 4,522 families, with special efforts to include the rich.
As New York University economist Edward Wolff observes, the Fed doesn’t count defined-benefit pension plans, money that, in a sense, belongs to the workers to whom pensions have been promised. Recent atrophying of these pension promises hurts the middle and upper-middle class more than the very top; ignoring that may understate the increasing concentration of wealth at the top."
Interesting stuff, to say the least.
Here’s the breakdown of wealth (net worth, not income), by quartile, over the past 4 surveys:
Share of the Wealth
| Percentile | Wealth in Millions of Dollars | Share of Wealth in Percentage Terms |
| 2004 | ||
| Bottom 25% | n/a | 0 |
| 24 to 49.9% | 1,319,977.5 | 2.6 |
| 50 to 74.9% | 5,195,835 | 10.3 |
| 75 to 89.9% | 8,856,460.5 | 17.6 |
| 90 to 100% | 34,910,182 | 69.5 |
| 2001 | ||
| Bottom 25% | n/a | 0 |
| 25-49.9% | 1,251,375 | 2.8 |
| 50-74.9% | 4,701,975 | 10.5 |
| 75-89.9% | 7,645,635 | 17 |
| 90-100% | 31,269,465 | 69.7 |
| 1998 | ||
| Bottom 25% | n/a | 0 |
| 25-49.9% | 1,067,040 | 3.2 |
| 50-74.9% | 3,824,415 | 11.4 |
| 75-89.9% | 5,734,314 | 17.1 |
| 90-100% | 23,025,492 | 68.5 |
| 1995 | ||
| Bottom 25% | n/a | 0 |
| 25-49.9% | 930,600 | 3.6 |
| 50-74.9% | 3,034,350 | 11.8 |
| 75-89.9% | 4,359,960 | 16.9 |
| 90-100% | 17,490,330 | 67.8 |
Courtesty of WSJ, Federal Reserve’s Survey of Consumer Finances
>
Source:
Rich Get Richer, But Not as Fast As You Think
Capital column by David Wessel
WSJ, March 2, 2006; Page A2
http://tinyurl.com/k5fnh (no sub required)
It looks like the 25-75 percentile are taking the brunt of globalization and the jobless recovery. Their lost share of wealth appears to be flowing right to the top. I wonder at what point this creeps into the 75-90 percentile?
It is amazing how stable the lower 0-25 percentile is though…. ;-)
So the top 1% owns one-third of all wealth, the next 9% owns another one-third, and the rest of 90% own the last one-third. And the Wall St Journal puts a positive spin on that – they’re not getting rich as fast as we think. Obviously they need another tax cut…
(I think this may relate to the cartoon you posted the other day!)
The exclusion of the Forbes 400 makes the estimates very conservative. Every year, the dollar figure for inclusionon the list grows, and I think about 300 on this are billionaires. That’s a lot of wealth to exclude when counting the top 1%.
The full breakdown of wealth for 2001 is available in the See the “Rolling Tide” article here
http://www.federalreserve.gov/pubs/oss/oss2/method.html
The table breaks down checking, savings, IRA, cars, houses, mutual funds, stocks, business equity, rental property, etc.
You know, one of the “statistics” leading into the great depression was the disequilibrium in national wealth. Now, being a student of history, I’ve read that without stats to back it up. Ain’t alot of secondary data available from 80 years ago.
Now, I’m not kidding myself by ever thinking America has ever had a proportionate wealth distribution. There will always be disparity. I’m surely not stating any position of depression either. More along the lines that long wave labor trends occur based on pain. Eventually, labor feels enough pain to rise up and attempt to take back what they have lost when the pain becomes severe enough. Maybe a self correcting machine? A machine that brings with it possible protectionism, decreased world trade, more legislation to protect worker’s rights and more social programs. 1970s? Last time we had protectionist tones in the Washington? Is this a major phase shift in the global economy or just another slow down? Ain’t no one thinking globalization could ever be slowed.
michael barone has a great post on this. mean and median wealth changes the numbers significantly… if you include Gates, etc.
http://www.usnews.com/usnews/opinion/baroneblog/archives/060301/the_wealth_of_t_1.htm
“Eventually, labor feels enough pain to rise up and attempt to take back what they have lost when the pain becomes severe enough.”
There is one more key factor: labor’s strength.
Labor was stronger when American workers were not competing with over a billion quasi-employed peasants desparate for any chance to join the modern economy and when work was more massified and less diversified. When thousands of people worked in the same factory day after day for mosts of their adult lives.
The balance of power between capital and labor has shifted decisively and irrevocably, I fear.
People under 30 years old don’t own much. Most of the wealth is owned by people over 45. It takes time & effort to accumulate wealth.
Reporting this story without that emphasis presents a distorted view.
algernon brings up a great point here.
Even the NYTimes last week admitted the rich made less money and the poor
and middle class made more money from 2001-2004. The average person in the top 10% made over 6% less money while the median American made almost 2% more money, all in real [not nominal] terms.
Looking at the data, under Clinton the rich made a lot, lot more, and under GWB’s first term, the rich made less and the poor and middle-class made more.
Of course, the NYT refused to connect those dots even when presenting all the relevant stats. Interesting.
The article is misleading.
On the one hand, it indicates that in coming up with the net worth figures it uses as cutoffs, the Fed includes the value of houses, cars, 401(k) plans, stock portfolios and saving accounts minus mortgages and other debts, which is true.
But then it makes it sound like all the people in the top 10% have money to burn, which isn’t true:
But many Americans with big incomes today aren’t simply clipping coupons or selling empires. They’re cashing huge CEO- or quarterback-size paychecks and collecting bonuses, commissions and stock-option windfalls.
At least for those people who are closer to the $831,600 net worth cutoff for what the article defines as “rich” than to the “Forbes 400,” annual incomes are probably closer to $100,000, or even much lower, very easily attainable from “wage income,” and not exactly vast wealth, especially if you live in, say, New York City or California. (For the record, I live in California, and went to law school in NYC.)
Also, unlike the traditional measure of net worth, which only counts “investments” and specifically excludes principal residence and consumer goods like cars (which, after all, are not assets but merely liabilities with use value, albeit high use value), the fed study includes houses and cars, which means if you bought a house in the ’90’s in a normal middle class neighborhood in California and didn’t blow your equity, the study says you are now considered “rich,” which is absurd.
So, contrary to what the article says, these people do not have vast incomes that they just “haven’t had time” to convert into wealth. What they do have is the ability to save money instead of spend money, and when they do spend it, they spend it on assets (things which go up in value and give you income) not consumer goods and other liabilities (things which go down in value and cost you money).
The article also demonstrate how inflation has made an absolute hash of the traditional yardsticks by which to measure what it means to be rich in America.
Watch out or Bull, yups, Bill O’Reilly will come and beat up on you. He has all the facts. I will never forgive Tim Russert for letting that bully work over Paul Krugman on a tv show that was talking about these very issues.
What is the picture in Western Europe?
B
Statistics on wealth disparity from 80 years ago are hard to find. However conclusions can be drawn by comparing productivity (booming) to median income (stagnant) during the 1920s. The same results happened then-as-now with asset inflation and debt-financed consumption.
I’m in the top 10%, probably in the top 5%. I’m doing fine. But I drive middle-of-the-line Toyotas, rent a home/not own, still run a monthly budget, fly coach, don’t buy art/fancy clothes/furniture/etc.
In short, for someone in the top 5%, it sure doesn’t “feel” like I’m super wealthy. Especially when I read how much some folks (the “real” rich folks) are spending on homes, collectibles, clothing, vacations, hotels, etc, etc.
Of course, I try to save $25-50K a year which acts as a constraint on spending. And I don’t use credit cards and have zero debt.
So I can certainly understand how the rich are getting richer, but the “really, really” rich are blowing the roof off.
As for the rest of the folks in the bottom 75%, what a mess.
So the 75%-89.9% chunk contains the “heart of the middle-class”? Really? For some some strange reason I was under the clearly now ridiculous notion that the middle class classification might be somewhat closer to the ….. middle. Also. note that the graph has been changed in the original WSJ post, the bottom segment is now representing 2.5% of net worth being held by the bottom 50%.
DJ,
Are you saying that you believe we are in a similar cycle as pre 1929? IMO I just don’t see that. There is excess in the system as there is in any expansion at this phase of the cycle. It is exacerbated by coming out of bubble expansion and capex spending that takes years to shake off but I don’t see crazy behavior like pre 2000 and what I’ve researched into pre 29. I’d think more like post 1929 and post 1968. The housing market run is similar to what happenened after great equity run from 1950 to 1969. That correlates more closely with a repeat of history. And since human behavior never changes……….
And for everyone who says we are competing against a billion Chinese so the playing field is possibly different, I just don’t buy it. We aren’t competing against a billion Chinese. I could go into a long oratory in defense of why that isn’t so but I won’t. It is no different than the globalization pressures we saw in the 70s when the cheap labor hordes from Japan were ruining us. Labor gathered alot of momentum, social programs garnered strength and society became very protectionist in the 70s. That doesn’t mean wages will explode but it does bode poorly for globalization and sustained global growth if we are repeating history.
$831,600 net worth is RICH!!!! Give me a break!!!! I guess we need to increase the taxes on us rich folks, because we own soooooo much.
In my state of Maryland. If two people are working and have saved and bought a home and car instead of blowing all their money for years then they are RICH by this defintion.
My question is if I am so RICH way do I feel like I am just a step above living pay check to pay check?
I must be insane, because I thought Rich people should be able to take all their money and invest in worry free long term bonds and be able to live a great life, you know sail around the world in their big yacht. Lets do the math $831,600 X .045 (interest rate) = $37,422/ year to live on before taxes. Hmmmm, but wait that includes the house, cars and etc. Not to mention the cost of the yacht to sail around in. So how am I suppose to live on this amount. And if I can not live on this amount, how in the world am I RICH.
Am I the only poor Rich person out there???????????
worry free long term bonds
Surely you jest. Only if you don’t have long to live.
Using the Millionaire Next Door criteria and assuming a $100k income and an age of 42, $831k/($100k*42/10) is 2 which would be wealthy, but if you were 83 it would not. The dollar weighted median age for wealth would probably be 50-60, so it is almost rich. See how spoiled you are!
It is difficult to be wealthy without owning real estate.
A ‘middle’ middle class? Never has been and never will be. The middle class is the tail of the income distribution. The mode of the income distribution is in the working poor, little more than the minimum wage.
Just a note about this study which looks at a random field of 5000 participants all equally truthful about their incomes and equally ready to spend the 2hrs doing it (for Science) [slightly better than doing it for Economics].
If that distribution of wealth is the same as it was 10years or so ago, the 5000 sample might be adequate. But if the distribution has changed and we suspect that the top 1% may fail to catch the near-billionaires (the top 0.01%), shouldn’t the size of this study be enlarged?
That was the note.
If you want to know how the super rich are doing, you really have to look at the Treasury’s IRS data rather than the Fed’s survey data, but it focuses on income rather than wealth although you can make return assumptions.
I agree with rbil’s comment. If you live in a city like New York, 100K annual income is chicken feed. First year associates in the big law firms now start at 145K, and can get a bonus on top of that. One of the big problems with our tax system is that there is no adjustment in the rate structure for radically different costs of living (urban vs. rural, coasts vs. the interior). I now make over 900k per year, and I am not rich in NYC.