Net worth rises even without real estate

Posted by: Michael Mandel on June 12

Real adjusted net worth per capita is rising even without including housing. Here’s what the chart looks like…we still haven’t reached the boom peak, but the long-term trend is up, despite all the borrowing from overseas.

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Reader Comments

Lord

June 12, 2006 01:25 PM

It would be real interesting to view this by income deciles. I think you would find the lower 90% has become awash in debt while the uppermost percentiles have had most if not all the net gain.

Brandon W

June 12, 2006 01:34 PM

A quick comparison of this graph to a 10 year chart of the S&P500 shows that wealth is almost precisely correlated to the stock market. Again, this would be another reason to look at a chart going back to 1950 rather than just a 10 year chart which may be an anomoly. What is more, if wealth is precisely correlated to stock ownership, then it should be pointed out that 85% of the stock market is owned by the top 10% of the population. This presents another reason to separate the 10%/90% groupings and compare. This is not only important for an honest look at where the wealth is going, but also because 2/3 of the economy is consumer spending. If 90% of the population is falling behind in wealth and becoming buried in debt, there is good reason to fear all the spending on credit because of the long-term impact it will have on consumer spending (POP!) and thus, the overall economy. If the economy does not continue to grow at a pace exceeding inflation and exceeding Treasury interest rates, there is also good reason to believe that our deficit spending *is* a crisis.

Mike Mandel

June 12, 2006 01:39 PM

Hi

You are right, these charts say nothing about distribution. Rather, they make a macro point--that the U.S. can sustain this level of trade deficits and borrowing, because our overall net worth is rising.

RP

June 12, 2006 05:55 PM

Mike - yeah, and with my head in the oven at 425 degrees and feet in the freezer, my macro temperature is just fine.

What the other commentors were asking is: "do you have a point, or just a word quota?"

Mike Mandel

June 13, 2006 10:26 AM

RP,

If you like, these charts are a diagnosis of the economy. The economic doctors who say that "we" are borrowing too much are wrong. Just scratch that out of your brain.

If there's a problem, it's a maldistribution of wealth. I actually think the big problem is that the young are getting creamed because their wages are not going up, and they didn't get the benefits of the rising real estate market (see my column here
http://www.businessweek.com/investor/content/mar2006/pi20060317_968884.htm)

Brandon W

June 13, 2006 12:08 PM

Mike,
One of the points I was trying to make is that the majority of this wealth is paper held by the top 10%. Overall, I can agree that the overall wealth distribution doesn't matter that much as far as a deficit goes (as long as the rich aren't funneling those paper profits out of the country; if I were them I'd funnel it out of the US and into physical gold, but that's me). Wealth inside the US is wealth to balance a national deficit, true. However, the fact that the wealth is not remotely evenly distributed (and is getting worse) means that the lower 90% are in a more precarious position. Those with homes will withdraw their spending when the home values freeze (or drop), and they can no longer suck equity out. The younger who have neither increasing wages nor homes with equity to sap are finding themselves unable to spend; especially since most of their recent spending has been done on credit cards which have rising interest rates. Now, what happens when consumers stop spending? Two-thirds of the US economy is consumer spending. What happens when corporate earnings drop? Stock prices drop. All that paper wealth goes out the window; and suddenly, those deficits that "don't matter" sure matter quite a bit.

Brandon W

June 13, 2006 01:09 PM

Mike,
One of the points I was trying to make is that the majority of this wealth is paper held by the top 10%. Overall, I can agree that the overall wealth distribution doesn't matter that much as far as a deficit goes (as long as the rich aren't funneling those paper profits out of the country; if I were them I'd funnel it out of the US and into physical gold, but that's me). Wealth inside the US is wealth to balance a national deficit, true. However, the fact that the wealth is not remotely evenly distributed (and is getting worse) means that the lower 90% are in a more precarious position. Those with homes will withdraw their spending when the home values freeze (or drop), and/or they can no longer suck equity out. The younger who have neither increasing wages nor homes with equity to sap are finding themselves unable to spend; especially since most of their recent spending has been done on credit cards which have rising interest rates. Now, what happens when consumers stop spending? Two-thirds of the US economy is consumer spending; corporate earnings drop. What happens when corporate earnings drop? Stock prices drop. All that paper wealth goes out the window; and suddenly, those deficits that "don't matter" sure matter quite a bit.

Robert Nanders

June 15, 2006 12:14 AM

Well, it's been a good sixty some years since an hard-on depression, so maybe its in the cards. In that case, I just pray the Fed doesn't jump in with both hands like last time...

Nathan

June 16, 2006 04:38 PM

Brandon,

If you actually look at the Fed numbers, you can see where the wealth is distributed. Older people (and of course, richer people) have most of it. A few reasons for this.

1. Social Security/Medicare: Both programs represent massive income transfers from young to old, and hence from generally poor to generally rich. If you are concerned about wealth distribution, this would be a good time to lobby your congresspeople about eliminating these programs.

2. Age: Generally speaking, the older you are, the more skills you have acquired, hence higher incomes. Also, by the time most people hit their mid-50's, they have no dependents, either older or younger, and are in their prime wealth generating years.

So there you have it, older people are wealthier, and it really shouldn't be a shock because they are subsidized by younger people, and they have also had a lot longer to generate wealth, neither of which does anything to obscure the overall message that Americans are a lot more prosperous and a lot wealthier at all income deciles than any other large country.

Brandon W

June 18, 2006 11:38 AM

Nathan,
I really think that's a cop out. If you look at the situation of current young Americans compared to where their parents were, you will find that young Americans *are* in trouble. Compare incomes and income growth between now and, say, 1960. Incomes, in general, are lower as well. I know there are lots of graphs showing average weekly income going up over the past 10 years. But, try doing those numbers and charts back to, say, 1970. You will find that weekly wages in the early-mid 1970's (dollar adjusted) were 10-18% higher than they are now - even after a decade of income growth! Our parents did have a much better situation than we did.

Also, my comment really addressed the overall income distribution picture. I only pointed out the "younger American" bit because Mike, himself, acknowledged it.

Bruce

September 6, 2006 12:32 PM

Nice to see the usual myths spread about. If you check, the percentage a families with negative and low net worth has fallen. So much for the only the rich benefited.

Thank you for your interest. This blog is no longer active.

 

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Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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