The Distribution of Wealth in America
--- July 22, 2011 ---
If we could magically transfer just 5% of the nation's total assets ($2.7 trillion) from the wealthiest 10% of households (who own over $37.8 trillion) to the lowest 40% of households --- this would reduce the share of the top 10% of households from 70% to 65% of all assets --- then the lowest 40% of households (47 million households or 125 million Americans) would increase their average net worth from $2,200 to $60,000 per household. Is that dreaming irrationally? Is that being un-American? Why do the least wealthy 40% own only 0.3% of the nation's total wealth? Would that improve the quality of life? What prevents such a wealth distribution?
You may read the following as a facetious story, but no, not on this blog. It's only too true. True Detective True. I draw my facts from the report "State of Working America's Wealth" by Sylvia Allegretto, published March 2011 by the Economic Policy Institute. (more on her research below)
I'm dreaming. In the middle of the night I dream a friend invites me to his house; I agree. He says, "Let me introduce you to my housemates." I agree. I walk in the door of his house, and the first thing he says is, "The median height of everyone living here, all 20 people in this house, is 6 feet tall." That's a little odd. "The median height? What is he talking about?" I remember, the scale from shortest to tallest, the guy in the middle is the median, and he is 6 feet tall, half shorter and half taller. Why does he bring this up. I nod, OK. It's a tall group. I don't ask a lot of questions because I'm dreaming. That's my height, too.
Then he says, "But the average height is a lot taller, something like 21 feet tall." I wonder, "What the hell is he talking about?" (The median is 6, the average 21 feet???) "Let me introduce you to the other 19 men and women who live here," he says, and I agree. He takes me to a room and opens the door and I see 8 little mice-like human beings running around on the floor, shouting and yelling. He closes the door abruptly. He says, "The average height in there is 1.4 inches high. Those 8 roommates are really short. We don't know exactly what to do about it." I nod and gulp. I noticed how fast he shut the door. How odd, what were those things? They could all stand on the handle-bars of my bicycle.
Then we go to the living room where he introduces me to 10 other residents, and they range from 5 foot four to 6 foot 6, normal looking adults, all pleasant and well adjusted -- except one is really tall, about 10 feet I guess. He shares the name of each one. I start to forget about the other room with the excited little 8 shrimp-anoids running around and shouting. I am happy to meet these ten people, they are all friendly. I say, "Larry told me he really enjoys living here and the company of his housemates, it's an interesting place to live. It' nice to meet you all." Or something like that. And I add, "Now I've met you and 17 of your housemates, where are the two other housemates?" He points outside. I gaze out the open door where I see two huge buildings that resemble airplane hangers or maybe where the blimps sleep at night. There are two giants in the two buildings. He says, "That's Oscar over there, the short giant, only 50 feet tall, and Horace, can you see him? He's enormous, 300 feet tall! He rests in that house pretty much all day long. Oscar is 50 feet tall, Horace is 300 feet tall."
"My God! How could that be? But I thought you said the median height here was 6 feet tall," I say somewhat stupefied. My friend replies, "Yes, that's true, the median height is 6 feet, but I did say the average height is 21 feet tall. The average went way up because of those two giants, Oscar and Horace, who you see out there resting in the shade of the dirigible hangers. Because one of them is 50 feet tall and another 300 feet tall, it brings the average to 21 feet tall." My head is swimming, I can't do all this math in a dream.
There are 20 people in this house. Total height of everyone: add up, 8 times 1.4 inches is about 1 foot; 9 times 6 feet = 54 feet, plus one whose is 10feet tall; plus one 50 feet, plus the 300 footer = 415 total feet. Divide by 20 equals almost 21 feet, the average. The median height (the middle guy in a scale from shortest to tallest) of all the 20 people is 6 feet tall. Eight of the people are midgets, 1.4 inches in height. Ten are normal looking, and the other two, 50 feet and 300 feet tall. Then I start thinking, maybe I should try to wake up from this dream. Time to awaken old sport, this is getting too weird.
But, this dream image accords with the distribution of wealth in America.
But if I convert these 20 dream images from height into weight, then we will see 8 tiny people weighing about 4 pounds, 10 people weighing about 200 pounds (some are obese to be sure), one huge guy at 1,560 pounds and another weighing 9,360 pounds. Still we preserve the essential ratio of wealth distribution. Imagine what a nightmare. But let's not be unpatriotic. "God bless America" and all that. The greatest place on earth. It has its virtues.
We would be a far better nation if we distributed income and wealth in a more equitable fashion. As far as income distribution, see the United Nations Human Development Index, the U.S. is the most unequal among developed nations, and ranks about 72nd among all nations on Earth, behind Egypt, Russian, Bulgaria and others. The link above is more interesting, placing the U.S. 24th in a list of the top 30 most developed countries, showing the quality of life for the lowest is still much higher than many nations. Inequality studies are very complicated.
See Sylvia Allegretto's report if you think I invented this dream. She reports that the "average" net worth is just below $500,000, the white household median $97,000, the fortieth percentile stands at $65,200, the African American median $2,200. The top 5% owns 60% of all assets, and about 72% of all financial assets (stocks and bonds). And the next top-most 5% owns 10% of all assets (from Edward Wolff's report at Levy Economics Institute). The average net worth of the bottom 40% is $2,200, and they own 0.3% of all assets. With those details one can determine the ratios as I did.
Page 2 is an eye-opener, a summation of fallout from 2007 to 2009. The nation lost 16% of its net worth, the bottom 90% lost 25% of their worth, the bottom 80% lost 40% of their worth. The bottom 80% own 12.8% of all net worth. The ratio of median household net worth (the 50th percentile) to the top 1% is 1 to 225, a new record. Almost 1 in 4 households have no net worth, 3 out of 8 have less than $12,000. House prices dropped 32% since 2006. Home equity as a percent of home value dropped from almost 60% to 36.2%, "meaning that banks now own more of the nation's housing stock than people do," for the first time on record.
Our U.S. society has problems. Our incarceration rate is about 12 times the rate of Japan, and the homicide rate is 6 times the rate of Japan, Germany and much of Europe, to name two important metrics. Thoughtful and caring people ask themselves "why?'" Do our rules of organization (economics) and the opportunities available to some but not to all contribute? Why such alarming disparities between other advanced countries? Certainly avoiding human suffering is common sense. Personally, I worked at an elementary school in a poor and violent neighborhood, and I got sick of the conditions there. Poverty neighborhoods and criminal behavior are inseparable and ineradicable. But other advanced countries do not have it as bad. Why? Unfortunately we do not recognize our blatant problems, and a "What me worry?" ("or care?") attitude is normal. Or "America is the best, beyond question (ing)." Let's not be bothered with murder and mayhem, unless it's on the TV happening to some unfortunate poor soul. And when misfortune is reported, it serves more as an alarmist message that increases general fear and paranoia, not compassion or constructive thinking.
Recently a survey report originating from the National Bureau of Economic Research, the organization that announces the official beginning and end of recessions in the U.S., noted that half the population in the U.S. would not be able to come up with $2,000 within 30 days without selling something or borrowing from a relative or friend. Half. See CNN Money, May 14, 2011, "Half of Americans Don't Have $2,000 for a Rainy Day". Only one in four were certain they could handle the emergency.
The Credit Suisse Bank released "Global Wealth Report" in October, 2010. By my rough calculation, if the U.S. had the same wealth distribution as Japan almost all families would have over $100,000 in savings. Perhaps that is why people are not killing each other in Japan, at least not a the rate people kill one another in the U.S.. (See page 16 and 28) You might be surprised to learn that even poor communist China does better than the U.S. Though they have billionaires, by and large their distribution is more equal than most countries.
If we could magically transfer just 5% of the nation's assets from the wealthiest 10% of households to the lowest 40% --- reduce the share of the top 10% from 70% to 65% ---, then the lowest 40% of households (47 million households or 125 million Americans) would hold on average $60,000 instead of $2,200. Is that dreaming irrationally? Is that being un-American?
Scholars at Washington University in Saint Louis, at the Center for Social Development, Mark Schreiner and Michael Sherraden have proposed methods of asset accumulation for low-earning households. The "Individual Development Account" is the primary focus of their proposal and research. Their book "Can the Poor Save?" describes their research. A social program in San Francisco, SF Earns, see www.earn.org, provides incentives to low-earning families to save for education, housing, or business creation. I recommend that readers review the successful and encouraging personal stories on their web page. These programs are marvelous, but grossly under-funded.
In Germany, 40% of the banking system is publicly owned. See German Public Banks, a Wikipedia article. Assets do not have to be held privately, and accumulation beyond the sky's limit does not have to be the social norm. Such a norm contributes to mis-allocation of human and natural and especially financial resources.
This is just a beginning of a look at a very large and neglected problem, the 300 foot giant -- or is he a monster?