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Home Publications Blogs Beat the Press All Things Considered Falls for Pew's Phony Generational War Story

All Things Considered Falls for Pew's Phony Generational War Story

Monday, 07 November 2011 21:12

All Things Considered did a major piece on a study from the Pew Research Center which showed substantial increase in the median wealth of people over age 65 from 1983 to 2009, while wealth among those under 35 actually fell. The Pew study was seriously misleading for several reasons.

First, the wealth of all groups except the young rose. In other words, it is not just the wealthy who saw an increase in their wealth over this period. The Federal Reserve Board's Survey of Consumer Finance (a different survey) shows that the median wealth of households aged 35-44 rose by almost 25 percent over this period, median wealth for households between the ages of 45 to 54 rose by 60 percent, and more than 100 percent for people between 55 and 64. Of course much of this wealth is simply defined contribution pensions (which do get counted) displacing defined benefit (DB) pensions,
which don't get counted.

It is remarkable that the researchers at Pew did not make a point of discussing the role of DB pensions since it is likely that the decline of DB pensions likely offsets much of the rise in wealth. It is also very misleading to highlight the percentage decline in the wealth of the young, since they had very little wealth even in 1983. If the median young household had $10 in wealth in 1983 and this fell to $1 in 2009, this would be a 90 percent drop in wealth. However, it would be foolish to highlight this decline. The basic story is that young people had little wealth in both periods. 

Comments (7)Add Comment
Young are Wealthy Despite Luddite Fallacy
written by izzatzo, November 07, 2011 11:51
Any economist knows the young have more wealth than the old by virture of the large present value of human capital which is essentially zero for the old.

This trend would be reduced by the increasingly rapid substitution of capital for labor which would normally shrink the labor pool to zero except for Keynesian spending offsets that will keep the young employed for a lifetime as robotic substitution is postponed.

OWS needs to stop smashing the machines of the service sector to save labor intensive jobs and get with the program. The young are wealthy, they just can't liquidate until the next asset bubble.

Stupid liberals.
written by kharris, November 08, 2011 8:00
Assuming we accept izzatso's point about wealth - an argument which includes the ever-dubious claim that "any economist knows" what izz needs economists to "know" in order to make his point - it still misses the point. If the young are wealthy in earning potential, then they have long been wealthy in earning potential, and there is no reason to think that a recent shift in relative wealth has anything to do with the issue at hand. Since real incomes have stagnated, on average, for some time, the earning potential of the young has not, on average, risen unless they choose to work longer. Youth in no way explains the shift in relative wealth.

(By the way, that bit about future labor income constituting wealth...represents a misunderstanding of what "any economist" actually knows. Labor represents a surrender of leisure. Leisure is a good thing. Overwhelmingly, labor income provides for current consumption as well as wealth accumulation, at the cost of leisure. In addition, much of anticipated future income cannot be converted to current wealth, so the "wealth" that izzatso ascribes to the young is wealth at a very different level of abstraction than wealth in the form of land, durable goods, productive or financial assets.
written by pete, November 08, 2011 8:13
Leisure labor blah blah...this is the argument why the unemployed need a much higher wage relative to the unemployment benefit, since the leisure they are enjoying is so valuable....
Yes that is probably true, but now what KHarris had in mind, eh...

The idea of NET future income, that is income over leisure, should maybe be considered, but the present value of the stream of utility from future leisure is I suppose wealth. Then besting that by actually trading leisure for work is even better. So baseline wealth is simply leisure, and more wealth may be obtained by trading leisure. Examine for instance the payouts to 9/11 victims, especially bond traders. Value of life is kind of wealth, eh???
written by kharris, November 08, 2011 9:48

The problem with pretending to be a mind reader ("now what KHarris had in mind, eh..." (sic)) is that you aren't, in fact, a mind reader. You seem to think I have something "in mind" other than getting the economics right. In this case, that's simply not true. I just get a little grumpy when I see claims that "any economist knows" (or "all" or "every" or "real" or "good economist", take your pick) something that isn't actually a generally accepted view among economists.

Now, you seem to have a particular use in mind for the labor/leisure issue having to do with a reservation wage. Feel free to elaborate, but in the process, do try to avoid pretending to know stuff you don't actually know.
Source of 65+ median net worth increase.
written by AndrewDover, November 08, 2011 1:07
Perhaps the reason behind the increase in "Median Net Worth" for those over 65 is the increase in "Median Home Equity":

Median Net Worth (in 2010$) for over 65
1984 120K
2009 170K

Median Home Equity (in 2010$) for over 65
1984 92K
2009 145K

Both rose about 50K.
written by bmz, November 08, 2011 3:59
Tax changes for middle-class seniors also greatly reduce the apparent increase in median wealth. In 1983 Social Security benefits were not taxed. Now the taxing of Social Security benefits produces marginal income tax rates for middle-class retirees of over 50%.I am 70 years of age, and am self-employed part time. My AGI is ~$54,000/yr. At that income, I must pay, in addition to my regular tax, a tax on 85% of my SS benefits( for every marginal dollar of income, I pay a tax on $1.85). My total marginal income tax rate is: 25%(regular rate) +21.3%(85% of SS) +12.4%(self-employment tax) +7.5%(state income tax) = 66.2% total marginal income tax rate.
written by Domby, November 09, 2011 1:49
I wonder how this report would read if the average were calculated withoutthe wealth of the top 0.1%? Or for that matter, without the top 0.01%?


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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.