A wealth of wealth data and why the slog is so…sloggy
A wealth of data on income and wealth was released today from the Survey of Consumer Finances (SCF) by the Federal Reserve. The NYT reviews some of the main findings here, but there’s a lot more in this report.
Most surveys of this sort focus on income and wages, but the SCF lets you look at net worth—assets (of which income is but one part) minus liabilities, or debts. This is particularly important over a period with so much asset depreciation, specifically the loss of housing wealth.
Probably the biggest punch line here is something we already knew, but now can see quantified in all its ugliness: the loss of wealth in the Great Recession was even worse than the loss of income. The first figure looks at middle-income families, those in the middle fifth of the income scale, whose income level was about $45K in 2010.
As you can see, their real net worth fell more than three times faster than their income, 2007-10, mostly due to the decline in home prices. The decline in net worth in 2010 dollars was from $92.3K to $65.9K.*
With declines in net worth of this magnitude, it’s no wonder the recovery has been so sluggish. And the net worth of the median household is not just lower than it was in 2007; it’s back to the level of the early 1990s, according to the NYT.
A few other data points jumped out at me. We know that many families have been “deleveraging” since the bust in 2007, meaning they’ve been paying off debt. That’s understandable and helpful to them and to the economy in the long run, but is another reason why our recovery has never gained much traction—the US economy is still 70% consumption, so having a lot of households in paying-down-debt mode ain’t exactly pro-growth in the near term (Keynes labeled this the “paradox of thrift”).
Well, according to the SCF, at least by 2010, they hadn’t gotten very far. The survey reports on a leverage ratio—the ratio of your debts to your assets. It actually went up, 2007-10. I suspect it’s gone down a bit since, but again, these indicators help explain the slog in which we’re stuck.
The overall value of families’ liabilities decreased between 2007 and 2010, but the rate of decline was less than the corresponding rate for families’ assets. Accordingly, the ratio of the sum of the debt of all families to the sum of their assets—the leverage ratio—rose from 14.8 percent in 2007 to 16.4 percent in 2010 (table 12). The leverage ratio for the subset of families that had any debt rose at a faster pace, from 19.4 percent in 2007 to 22.0 percent in 2010…
Finally, I always find these data to be a useful reminder of the vast disparities in racial wealth. The last figure compares relative incomes and relative net worth of non-Hispanic whites to everyone else in 2007 and 2010. Since minorities were hit harder than white households, both the income and wealth gaps grew in the Great Recession. But look at the magnitude of the net worth gap: non-white or Hispanic households had only 16% the net worth of white households.
Those who track racial economic progress must look beyond wages and incomes. Some progress has been made in those areas, but there’s still a ways to go. But when we add the historical legacy of discrimination’s impact on wealth, it’s a whole different story, one of very little progress. (Immigration surely plays a role here as well, though immigration fell over this period so it cannot explain the trend.)
*The median net worth loss discussed in the NYT article is even larger— down 39%. That comes from the distribution of net worth for all families, whereas the one in the figure is drawn from the income distribution of middle-income households.
Jared Bernstein joined the Center on Budget and Policy Priorities in May 2011 as a Senior Fellow. From 2009 to 2011, Bernstein was the Chief Economist and Economic Adviser to Vice President Joe Biden. Follow his work via Twitter at @econjared and @centeronbudget. More Jared Bernstein.
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