No one should be surprised that the rich are doing quite well. We’ve lived through at least a thirty-year robbery of the wealth of the nation. But, it’s worth digging into some of the numbers to get to this point: the divide between the rich and the rest of us has never been this bad–and it will get worse.
The new light shed on this robbery comes from Sylvia A. Allegretto, an economist and deputy chair of the Center on Wage and Employment Dynamics at the Institute for Research on Labor and Employment, University of California, Berkeley, and a research associate of the Economic Policy Institute. In an in-depth study, Allegretto looked at the wealth of Americans–which has been devastated by the housing collapse and the financial crisis
First, so we’re operating on the same page, what is wealth?:
The definition of net worth, also referred to as wealth, is the sum of all assets minus the sum of all liabilities. Assets include items such as real estate, bank account balances, stock holdings, retirement funds (such as 401(k) plans), and individual retirement accounts (IRAs). Liabilities include mortgages, credit card debt, outstanding medical bills, and student loan debt. Net worth excludes assets in defined-benefit pension plans because workers do not legally own the assets held in these plans and thus do not necessarily benefit or suffer from gains or losses in the value of assets used to pay the defined benefits. For similar reasons, this analysis also excludes Social Security and Medicare from net worth calculations. But given the very low levels of wealth owned by the households in the bottom of the wealth distribution in the United States, the implicit wealth provided to them by defined-benefit pension plans and Social Security is absolutely crucial to their ability to achieve acceptable living standards during their retirement years.
It isn’t as if we lived in an equal society before the recent financial crisis. But, it has gotten significantly worse: [more below the fold]
Since 1983 the top 5% of wealth holders consistently held more than 50% of all wealth, but the share increased from 56.1% in 1983 to 63.5% in 2009. The bottom 80% of wealth holders consistently held less than 20% of all wealth, but the share declined from 18.7% in 1983 to 12.8% in 2009.
And if you look a the ratio between the rich and the rest of us, you can go back further to find:
In 1962 the ratio was 125. In other words, the wealthiest 1% of households averaged 125 times the wealth of the median household. However, that large disparity is dwarfed by today’s wealth gap; the wealthiest 1% of households averaged 225 times the wealth of the median household in 2009.[emphasis]
And in the real upper reaches of the super-rich of the Forbes 400, who collectively are now worth $1.5 trillion:
Average wealth for the top 400 trended upward and increased by 633% from 1982 to 2000—from $509 million to $3.7 billion (middle line). Average wealth of this group decreased in two periods, the first time after the bursting of the tech-stock bubble (2000), and the second time due to the bursting of the housing bubble. In 2009 wealth of the Forbes 400 averaged $3.2 billion—up 523% from 1982.
The racism running through this great divide is even more obscene:
In 2009, the average financial wealth of black households ($52,400) was only 14% of the average financial wealth of white households ($380,500). At $200 the median financial wealth for black households was less than 1% of the corresponding figure for whites ($36,100).
Most Americans got screwed in the recent financial crisis, in part, because a big part of an average person’s wealth was built into their homes–not in stocks, bonds and other financial instruments. The rich?:
In 2007, the wealthiest 1% of households owned an average of $4.2 million in stocks (in 2009 dollars)…By comparison, the average stock holdings of the middle 20% of households was just $10,200, and the average for the bottom 40% was $1,700. These data confirm that stock ownership is not very pervasive in the middle and lower wealth classes. Assets (stocks plus all other assets) held by the middle 20% totaled $206,870 in 2007, but just 4.9% were in stock holdings. By comparison, the top 1% held an average of $19.7 million in total assets and 21.4% were in stock holdings.
And:
Importantly, this discussion has exposed the fallacy that all or even most American households are invested in the stock market. Fewer than half of households have any stock holdings, and only about a third have stock holdings—either direct or indirect—that are worth more than $6,000. To a large extent, low- to moderate-income households depend on labor income alone to meet their financial obligations, as they own very little stock that can be cashed in during times of economic hardship.
So much for the great "ownership society". Well, we do "own" lots of bad mortgages and a crushing personal debt burden.
Allegretto digs deep into the housing crisis and it’s worth reading her discussion of the trends. But, this jumped out at me:
For the first time on record, the percent of home value that homeowners ownedoutright dropped below 50%—meaning that banks now own more of the nation’s housing stock than people do. Homeowner equity has been below 50% for almost three years. Because home equity is the primary source of wealth for a large majority of households, these declines have had devastating effects on the economic security of many, if not most, homeowners.[emphasis added]
And, finally:
The loss of wealth due to the housing bust and the Great Recession further increased an already vast wealth divide. From 2007 to 2009, the bottom four-fifths of wealth holders gave up 2.2 percentage points of wealth to the top fifth of wealth holders; in 2009, the wealthiest households—the top 1%—had net worth 225 times greater than that of the
median or typical household, the highest ratio on record.
The wealth that a typical family manages to accrue is central to its standard of living, and housing equity, rather than stocks or bonds or other financial assets, is its most important form of wealth. But with homeownership rates continuing to fall, foreclosure rates high, and prices that hit bottom in 2009 and have only leveled off and are still fragile, it is clear that American families have yet to experience the full extent of this devastating bust.[emphasis added]
Read that last sentence several times to absorb its meaning. It means that, as many of us have pointed out, all the pronouncements that the "recovery" is on its way, that things are on the upswing are false and illusory.
And it makes even more despicable the actions by cowardly political leaders, who prefer to cater to their rich campaign contributors rather than raise taxes on the very wealthy who, in fact, are continuing to pile up even more wealth.
