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Home Publications Blogs Beat the Press Median Wealth Is Down by 20 Percent Since 1984

Median Wealth Is Down by 20 Percent Since 1984

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Monday, 28 July 2014 05:04

A NYT article reported on a study from Russell Sage reporting that median household wealth was 36 percent lower in 2013 than 2003. While this is disturbing, an even more striking finding from the study is that median wealth is down by around 20 percent from 1984.

This is noteworthy because this cannot be explained as largely the result of the collapse of house prices that triggered the Great Recession. This indicates that we have gone thirty years, during which time output per worker has more than doubled, but real wealth has actually fallen for the typical family. It is also important to realize that the drop in wealth reported in the study understates the true drop since a typical household in 1984 would have been able to count on a defined benefit pension. This is not true at present, so the effective drop in wealth is even larger than reported by the study. (Defined benefit pensions are not included in its measure of wealth.)

Comments (10)Add Comment
Beatings Will Continue Until Morale Improves
written by Last Mover, July 28, 2014 8:46

Rise up from the hammock prison of coddled welfare America.

Escape socialism and be all that you can be.

Create your own demand. Produce twice as much and receive half as much.

Give thanks to those who allow you to reach your potential.

For they inherited the earth. That includes your job, your income, your wealth, every overpriced thing they sell you and all the intangibles which determine your well being.

It's theirs, not yours. As takers they took it fair and square. They own you.

Be grateful for what you have. It could be worse. You could be living in Detroit without tap water or worse, without a cell phone.

The takers are doing everything they can for the makers America. Show your support. Take advantage of incentives to leave the hammock and work to improve your morale.

You won't regret it. They require a whole loaf to create your job. So a half a loaf for avoiding a beating instead is worth more than a quarter loaf of welfare coddling any day. It's win-win. Stop your whining.
...
written by dax, July 28, 2014 9:03
My guess is you can go back to the 1970s, so you can say "we have gone forty years..." Is this true?
DAX: 1968 was peak US income equality...not sure about wealth in 1968.
written by pete, July 28, 2014 12:18
Might or might not be correlated.
...
written by PeonInChief, July 28, 2014 12:49
The 25th percentile is the most interesting, as it shows the deterioration in wages, as most people in the poorest 25% don't own houses. Their wealth is mostly savings, and there's very little of it. The collapse at the median is probably partly the collapse of housing prices and families having to raid savings and retirement accounts as a result of job losses.
...
written by skeptonomist, July 28, 2014 1:26
When economists talk about how things have changed since 1984 or 2000 or some other recent time they are missing a lot. Real wages in most parts of the economy took an instant plunge in 1973 and have not come close to keeping up with GDP since. Here is what construction wages* look like:

http://www.skeptometrics.org/C...rnings.png

What happened during the time of commodity inflation - and the Fed's failed attempt to control it - are obviously a large part of the inequality story. This type of inflation could happen again at any moment - the Fed didn't cause it and couldn't control it then and there is no reason to think it could do so now - but its actions probably would contribute to unemployment and reduced wages.

The effect of the inflation of the 70's on wealth is complicated because as interest rates rose bonds were devalued and the stock market fell. But the stock market wealth was recovered in the record 20-year bull market which followed, and people who bought bonds around 1980 also did very well. So the wealth of affluent stock and bond holders probably did decline through the 70's but came back strongly afterwards.

*This is based on hourly wages (from FRED) over 30 weeks/year, partly to make the slope before 1973 about the same as GDP, but also since construction is highly seasonal. Overall, production and non-supervisory wages did parallel GDP from the Civil War to 1973 and then followed the same collapse afterward. GDP was also corrected with the CPI-U, so the inflation measure has nothing to do with this.
What am I missing?
written by Kenneth Thomas, July 29, 2014 3:23
According to Figure 1 in the paper, median wealth in 2007 was 40-45% greater than in 1984. All the decline happened after 2007, so I'm not sure you can exclude the collapse of home prices as one of the main causes of decline at the median. What am I missing?
It cannot be house prices (but it may be debt)
written by sherparick, July 29, 2014 8:23
As this chart from "Calculated Risk" shows, real house prices are considerably higher now then they were in 1984 (which were near a bottom due to the 1980-82 recession). http://www.calculatedriskblog....ratio.html

Wealth, as computed as "net worth" is Value of Assets - debts. Between student loans, underwater mortgages, and HELOC loans, there has been a substantial decline in the equity held by working class and middle class home owners since 1984 as their debt to value ratios have climbed. Most homeowners who bought houses in the bubble years are still underwater and by definition have a negative net worth unless their cash savings + home value exceeds the debt they have on their homes and/or carrying as student loans.
Reaganism is a series of claims
written by Thornton Hall, July 29, 2014 9:19
Reaganism is a series of claims that have turned out to be false.
http://thorntonhalldesign.com/philosophy/2014/5/5/reaganism-is-a-series-of-claims-about-the-world-that-have-turned-out-to-be-false
Link problem?
written by Thornton Hall, July 29, 2014 9:27
Are both links about the same study? Not sure if 1984 comparison study is linked here?
What you are missing
written by reason, July 30, 2014 2:24
The extraordinary and unsustainable run UP in house prices before 2007.

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About Beat the Press

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.

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