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Home Publications Blogs Beat the Press Serious People Do Not Use Wealth of People Under Age 35 as a Measure of Their Well-Being

Serious People Do Not Use Wealth of People Under Age 35 as a Measure of Their Well-Being

Friday, 22 June 2012 22:35

There is a well-funded effort in this country to try to distract the public's attention from the massive upward redistribution of income over the last three decades by trying to claim that the issue is one of generational conflict rather than class conflict. Billionaire investment banker Peter Peterson is the most well-known funder of this effort, having kicked in a billion dollars of his own money for the cause.

However, he is far from the only generational warrior. The Washington Post has often gone into near hysterics screaming about retirees living on their $1,100 a month Social Security benefits and getting most of their health care paid for through Medicare. And, there is no shortage of politicians in Washington who like to think themselves brave because they will cut these benefits for seniors while protecting the income and wealth of the richest people in the country.

David Leonhardt flirted with this disreputable group in a column that focused on the gap between the old and the young. While much of the piece is devoted to political attitudes, it delves into utter nonsense in trying to contrast a "wealthy" group of seniors with a poor group of young people.

Leonhardt picks up on a study done by the Pew Research Center to tell readers:

"The wealth gap between households headed by someone over 65 and those headed by someone under 35 is wider than at any point since the Federal Reserve Board began keeping consistent data in 1989."

That makes you think those oldsters are doing real well, right?

Well, if we look at the Pew study we see that the median household over age 65 has $170,500. Just so everyone understands how rich these people are, that number counts all of their assets. This is every penny they have in a retirement account, bank account, the value of their car and the equity in their home. The median price of a home in the United States is now about $180,000. This means that if the typical retiree took everything they own to pay down their mortgage, they would still owe $10,000. The only thing that they would have left to survive is that generous $1,100 a month Social Security check.

It is also important to note (which this Pew study did not) that the percentage of seniors with defined benefit pension plans (which are not counted in this number) has plummeted. Without factoring in the drop in DB pensions, it is not possible to make a serious comparison of the wealth of seniors over this period.

As an aside, how many people in this debate in Washington make less than $170,000 in a year? Yet, somehow seniors who will have this sum to survive on for the rest of their lives are rich? And by the way, half have less than this.

The wealth of the young is also a silly measure. Young people never have much wealth -- in the good old days they had $11,500 according to Pew. (That would be less than two week's pay for deficit hawk and Morgan Stanley director Erskine Bowles.)  A recent graduate of Harvard Business school may still be paying off her debt at age 35. However no one in their right mind would worry about the financial well-being of a Harvard MBA.

Young people are not doing well right now, but the relevant measure here is their employment and wages. Because our economy is run by people too incompetent to have noticed an $8 trillion housing bubble, many young people are suffering. But this is a story of Wall Street greed, corruption, and incompetence. It has nothing to do with the Social Security and Medicare received by the elderly.

Leonhardt should be ashamed for falling for this tripe.

Comments (19)Add Comment
But the VSP arguement you debunk is GPS's strategy
written by JaaaaayCeeeee, June 23, 2012 3:47
I see the internet saturated with debunked, divide and conquer, zombie red meat, almost daily, from Karl Rove; about how the Republicans are the only ones who care about the unemployment rate, the household formation rate, debt, and pay of recent graduates. They know they can only surpress the votes of poor, latino and black vote. However, for the younger vote, Crossroads seems to think they can attact whoever they don't turn off with their fake jobs agenda. I'm thinking not only about how much economic damage, underemployment, and lower wages will result from their fake jobs agenda, but their blaming Obama for more than 3 million fewer jobs the GOP is obstructing just by stalling the transportation bill and Obama's jobs bills proposals. I'd hate to think that this might screw young voters worse than the fake generational war Republicans are stirring up, which you so well debunk. Is there any way to see if younger voters are falling for the GPS jobs agenda, other than waiting until local, state, and national elections are over? Falling for GPS's deficit hiking, upward redistributing, fake jobs agenda, or just being turned off from voting completely, would suit GPS just fine, but not young voters, much less our economy. So I find their youth outreach at least as worrisome as their misuse of generational war.
written by bmz, June 23, 2012 7:24
This is just part of the Republicons' plan to steal workers retirement funds. The CBO projected that the surpluses Clinton left for Bush were enough to pay off the entire US debt by the time that the Social Security/Medicare trust funds would have to be amortized for beneficiary payments, all without having to raise taxes to pay for the amortization of those trust funds. These “surpluses” were made up entirely of excess payroll taxes building up the trust funds. Bush took those excess payroll tax receipts and gave them “back” as income tax reductions, heavily weighted to the wealthy–who didn’t create those surpluses in the first place. By doing this, Bush guaranteed that taxes would have to be raised in order to amortize the trust funds. The failure to do so simply permits the Republicons to steal the money contributed by workers for their retirement. That's what this is all about.
written by coberly, June 23, 2012 8:08
I dunno, Dean,

seems to me that we need to help out the youth in america. i propose that when any older person stops working, all of his wealth be confiscated and given to some poor struggling young person.

btw, you forgot to count the "present value" of all those social security checks in the wealth of old people.

and the shocking fact is those old people aren't paying for those benefits: they paid for them when they were young. see!
thanks for this piece
written by Doyle Saylor, June 23, 2012 8:37
I've seen locally some people extolling cutting Social Security to provide jobs for people with disabilities. The World Institute on Disabilities (in Berkeley) is funding studies to advocate private savings accounts to replace SSDI benefits. Just an alert to a wedge issue being fomented within the Disability community.
written by JSeydl, June 23, 2012 9:49
However no one in their right mind would worry about the financial well-being of a Harvard MBA.

This is true, which is part of the problem. Harvard MBAs (or those from other prestigious business schools) end up running the world, regardless of qualifications or competence. Many are successful in business, which is fine. But success in business does not permit you to enter the public stratosphere, demanding cuts to retirement programs or demanding that high school graduates forgo college to start internet tech companies. If we really want to change the system, then we've got to go to the source, which is the business schools in this country that spit out the Peter Petersons and Erskin Bowles of the world, who think that a degree in networking qualifies one to mold the country however he or she sees fit.
The striking thing about wealth
written by Lord, June 23, 2012 10:18
is how little there is. If you aren't in the top few percent, you probably don't have enough to live on. Wealth isn't income and generates little, perhaps 7% when not drawing on it and perhaps 4% when doing so, so dividing wealth by a factor of 25 shows just how little. This translates into an income of less than $7000 a year. Real wealth is found in wages and salaries.
PV benefits
written by tew, June 23, 2012 4:32
Failing to include the present value of pensions and health care is a fatal flaw to any such study. If you include that, then the assets of the over 65 group are much higher.

In addition, there are other programs such as food stamps, Medicaid, and various local, state, and federal assistance programs. Transfers of money, goods, and services from charitable organizations is another uncounted asset. That said, including those sources probably would not move the *median* number much.

Also, as the author mentions a study that does not include the value of pensions cannot be reliably used to compare changes in assets over time because the proportion of those covered under defined benefit plans has changed over time.
written by coberly, June 23, 2012 4:33
maybe it's just too obvious, but it needs to be said clearly anyway. the normal pattern is you start out in life with zero wealth. then you work hard and try to aquire wealth so you will have something to live on when you get too old to work.. or want to work... or find a job.

what these people are doing is speaking utter nonsense because they know that (other) people don't think at all, but can be relied upon to run around later and say "we need to cut Social Security because the old are wealthier than the young.

Social Security is the still the best way ordinary workers have to protect a part of their savings (wealth) so they will have "enough".

The bad guys want to force you to play their gambling game because they are better at it than you are. And the good guys want to force "the rich" to pay for your retirement, because even though that never works, it would be so much fairer if it did.

The poor worker doesn't stand a chance between them.
written by Fred Brack, June 23, 2012 8:18
You confused me here, Mr. Baker:

"Well, if we look at the Pew study we see that the median household over age 65 has $170,500. Just so everyone understands how rich these people are, that number counts all of their assets. This is every penny they have in a retirement account, bank account, the value of their car and the equity in their home. The median price of a home in the United States is now about $180,000. This means that if the typical retiree took everything they own to pay down their mortgage, they would still owe $10,000. The only thing that they would have left to survive is that generous $1,100 a month Social Security check."

The $170,500 figure includes home equity, and doesn't that mean home value minus mortgage outstanding? Yet you imply that the median ("typical") retiree owes $180,000 in mortgage. Moreover, how likely is it that a "typical" retiree owes 100% of the value of his/her home in mortgage on that home? (And what about renters?)

Either you or I got lost in the weed en route to your larger point.

Even without data, that point is sound: comparing net worth of people under age 35 with "middle-class" retirees whose wealth-accumulation days are largely past is silly. And it's even sillier when the plight of less-wealthy seniors is taken into consideration. And trying to do this as the Great Recession drags on, a recession that has been particularly hard on young people, is even sillier. This meme that seniors are screwing their children and grandchildren just won't hunt. The truth, as established by data, is -- as you tirelessly point out -- that our non-system health-care "system" is screwing us all. Handwaving to distract us from this fundamental truth manifests either willful ignorance or deliberate agenda-driven deception.
written by saurabh, June 23, 2012 8:45
Re: Fred, that confused me too, until I thought about it a bit more for a second. So, let's go through it:

Mr. X buys a house worth $180,000. He spends his whole life paying down the mortgage. Now he has $170,000 worth of equity, as Dean said. His mortgage was worth $180,000, so that means he still owes $10,000. That is, the $170,000 of wealth already includes the equity he's accumulated.
written by Jay, June 23, 2012 8:46
What ordinary person doesn't know a senior that needs Social Security or Medicare? It is obvious only wealthy, self-interested people are for something like this.These banks have been salivating for years about the prospect of something like Social Security being privatized and they could use that money to place even bigger bets or collect management fees.
written by Kat, June 24, 2012 10:43
Please, bless us with a post commenting on Rahm's brother's cockamamie plan to distribute wealth upward.
written by Andrew Solarski, June 24, 2012 2:58
btw, you forgot to count the "present value" of all those social security checks in the wealth of old people.

If you want to bring future payments into the equation fine but this will inflate the wealth estimate of both groups old and young as they both are owed this future income. And if productivity growth continues as it has since SS's inception, the present value of the younger person's SS obligation is greater than an older persons. Assuming the Petersen crowd doesn't steal it all and make this issue pointless.
At the median level, NO age group in America is doing well.
written by John Wright, June 24, 2012 5:18
If we assume the median household over age 65 lives in a less expensive house of about 100K, then they have about 80K to invest in what George W. Bush once called "the ownership society".

Let's say the over 65 group achieves a consistent 10% return on this 80K, I don't know how they do this, but assume they do.

This gives them a return on their investments of 8K/year.
This is roughly equivalent to a $4/hour job.

My point is the wealth of the median American family after 65 is insufficient to make much of a difference in their income stream. The median family is quite dependent on social security and Medicare.

So, the neglected story in these articles is that the median net wealth mathematically can't provide much income unless the elderly are able to invest and achieve better than Warren Buffett returns.

As the median is where 50% of the population is above and 50% below, the percentage of Americans that must substantially rely on social security and medicare may be higher than 75%.

One solution I see is to reuse the flat tax idea that was promoted by Steve Forbes.

Except this would be a social security flat tax that applies to all income, including capital gains, interest and dividends, as the social security income cap would be removed.

So this flat tax would also be on the carried interest income so popular with Wall Street.

Maybe we can get Steve Forbes to lead the campaign?

Health care is so costly because ignorant and/or self-seeking politicos want it to be.
written by Rachel, June 25, 2012 8:45
The elderly, and most patients, derive little benefit from health care that costs so much more than it needs to cost. Medicare patients do not receive much better care than patients in France or Germany. They only receive more costly care. It is the various "providers," medical specialists, drug-companies, imaging services, who make the big profits.

So why blame the Medicare patients, instead of the politicians and ill-informed or biassed "opinion leaders" who fail to acknowledge the true state of affairs?
Asset values
written by Mike B), June 25, 2012 7:07
The price of gold was something like $300 an ounce back in the 90s. Gold's going for over $1,500 an ounce now. The value of gold is the same, the price has gone up because the money it is priced in has gone down, down, down in value. As a worker, I saved and saved and saved for my retirement. I saved in money which could buy an ounce of gold for $300. I now have assets in USD which have been cut in half or more.

Our rulers' mendacity knows no bounds. We workers produce the wealth for them to accumulate in exchange for wages and a social wage which have both been cut one way or another by the politicians we elect and the wage system we support with our labour.

What is it? About 88% of the wealth of the USA ends up in the control/ownership of 10% of the people.
Those "rich" geezers ain't so wealthy!
written by Fred Donaldson, June 26, 2012 9:08
Census Bureau median household income in the past 12 months (in 2010 inflation-adjusted dollars) --
Householder under 25 years26,465
Householder 25 to 44 years57,132
Householder 45 to 64 years63,398
Householder 65 years and over33,906

Thought the people over 65 had all the income?
I think there's a factual error here...
written by Benoit, June 26, 2012 11:56
The paper actually looks at "net worth (all assets minus all debts)" so I think that the study is correct and not misleading. This would be the 1st time in years I see an error by Dean Baker...
written by John Wright, June 27, 2012 12:26
I believe Dean's calculation is correct.

If a family has a median price level house with value of 180K and a 10K mortgage, they have a net worth of 170K.

Of course this requires they have no other financial assets of note, otherwise they must have a higher mortgage to have the same net equity.

Net Equity = assets - liabilities.

For the example numbers:

170K = 180K(house value) -10K (mortgage)

The conclusion is the same, at the median level, the net worth of the older households will not go far.

They absolutely require a healthy social security system and Medicare.

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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.