Photo: Survey Of Consumer Finances
Yesterday, the Fed released its latest Survey of Consumer Finances.The report included a lot of depressing data about the financial situation of average Americans. But nothing was so shocking and depressing as this:
- The median net worth of American families dropped nearly 40% from 2007 to 2010.
(Yes, the situation has improved in the 18 months since 2010, but only modestly. House prices are about where they were back then.)
Most of this decline came from the collapse of the housing market. But we can’t just write this one off to the housing bubble. The median net worth of households has now fallen to the same level as it was two decades ago, in 1992.
What does that mean?
It means America just isn’t working right now.
Not just Americans. America itself, a country whose economy once worked for almost everyone.
In the old America, if you worked hard, you had a good chance of moving up.
In the old America, the fruits of people’s labors accrued to the whole country, not just the top.
In the old America, there was a strong middle class, and their immense collective purchasing power drove the economy for decades.
Over the past couple of decades, the American economy has increasingly mostly worked for the richest Americans, at the expense of everyone else. As a result, the disparity between “the 1%” and “the 99%” has hit a level not seen since the 1920s. And there is a widespread and growing sense that life here is not fair or right.
The middle class–the average American families–drive most of the spending in this country. Thus, when the middle class suffers, the whole economy suffers. And, right now, America just isn’t working for the middle class.
If we are to get this country headed in the right direction again, we need to fix this problem. We can start by appreciating how bad it is.
Yes, the housing bubble contributed to the 2007-2010 drop. But unless the housing bubble reinflates, that net worth isn't coming back. And house prices are just now getting back to normal.
Unemployment's coming down slowly. But we still have miles to go. We haven't yet recovered even half of the jobs we lost in the recession.
Put differently, a lower percentage of Americans are working than any time since the early 1980s (And the boom prior to that, by the way, was from women entering the workforce).
Corporate profits as a per cent of the economy also just hit an all-time high. Profits are now VASTLY higher than they've been for most of the last half-century.
If corporations are doing so well, everyone who works for them should be doing great, right? Wrong. The folks who are doing well are at the top. CEO pay is now 350X the average worker's, up from 50X from 1960-1985.
In short ... while CEOs and shareholders have been cashing in, wages as a per cent of the economy have dropped to an all-time low.
Of course, life is great if you're in the top 1% of American wage earners. You're hauling in a bigger percentage of the country's total pre-tax income than you have at any time since the late 1920s. Your share of the national income, in fact, is almost 2X the long-term average!
It wasn't always this way ... From 1917 to 1981, the bottom 90% of wage earners in this country (blue) captured 69% of the total wage growth. The richest 10%, meanwhile, got 31% of the wage gains.
Between 1981 and 2008, however, things changed. The richest 10% grabbed 96% of the income gains in those years, leaving only 4% for the bottom 90%.
And from 1997-2008, things got grossly unfair. ALL of the wage gains went to the top 10%. The wages of the bottom 90%, meanwhile, declined.
And, by the way, few people would have a problem with inequality if the American Dream were still fully intact—if it were easy to work your way into that top 1%. But, unfortunately, social mobility in this country is also near an all-time low.
So what does all this mean in terms of net worth? Well, for starters, it means that the top 1% of Americans own 42% of the financial wealth in this country. The top 5%, meanwhile, own nearly 70%.
And remember that huge debt problem we have—with hundreds of millions of Americans indebted up to their eyeballs? Well, the top 1% doesn't have that problem. They only own 5% of the country's debt.
And then there are taxes ... It's a great time to make a boatload of money in America, because taxes on the nation's highest-earners are close to the lowest they've ever been.
The aggregate tax rate for the top 1% is lower than for the next 9%—and not much higher than it is for pretty much everyone else.
As the nation's richest people often point out, they do pay the lion's share of taxes in the country: The richest 20% pay 64% of the total taxes. (Lower bar). Of course, that's because they also make most of the money. (Top bar).
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