Sky-rocketing Net Worth

[Mina]

A lot of news coverage has been given to the fact that in 2021 the net worth of billionaires shot up dramatically. What's been given less attention is that the net worth of poor and middle class Americans shot up even faster. Thanks to surging home values, higher stock values, and COVID rescue payments (which poorer people used to pay down massive amounts of debt), Americans saw an increase in net worth unlike anything since the Fed started tracking, and quite probably ever.

Anyway, I thought of an interesting way to visualize the change over time. Basically, take total household net worth and subtract the federal debt (so you have the net worth we'd be left with if we paid off the debt). Then divide by inflation (so that you're measuring real growth, rather than just inflated prices). Finally, divide by population (so that you're measuring per-capita growth, not just population growth). Here's what the result looks like:



You can really see, there, how much of net worth is driven just by property values. For example, after the Q1 2007 peak, we had the housing collapse, with net worths falling dramatically and taking years to return to sustained growth.

 

[phoenix2020]

Interesting and fascinating.

I think this is not sustainable and I am worried we are headed for something of a crash next year.

 

[Phys251]

Interesting and fascinating.

I think this is not sustainable and I am worried we are headed for something of a crash next year.

I would rather get a mild recession over with soon than have a big crash later.

 

[Exquisitor]

We got to start paying the bills.

 

[reflechissez]

A lot of news coverage has been given to the fact that in 2021 the net worth of billionaires shot up dramatically. What's been given less attention is that the net worth of poor and middle class Americans shot up even faster. Thanks to surging home values, higher stock values, and COVID rescue payments (which poorer people used to pay down massive amounts of debt), Americans saw an increase in net worth unlike anything since the Fed started tracking, and quite probably ever.

Anyway, I thought of an interesting way to visualize the change over time. Basically, take total household net worth and subtract the federal debt (so you have the net worth we'd be left with if we paid off the debt). Then divide by inflation (so that you're measuring real growth, rather than just inflated prices). Finally, divide by population (so that you're measuring per-capita growth, not just population growth). Here's what the result looks like:

View attachment 67388571

You can really see, there, how much of net worth is driven just by property values. For example, after the Q1 2007 peak, we had the housing collapse, with net worths falling dramatically and taking years to return to sustained growth.

In a recession, just about everything drops in value including 401k, etc. That drop in 2008 is not just housing.

 

[Mina]

In a recession, just about everything drops in value including 401k, etc. That drop in 2008 is not just housing.

Agreed. However, look at the period after 2008. Through 2013, net worth were still basically flat, despite 2009 and 2010 having some of the best stock performance in history (25.94% in 2009, for the S&P 500). So, it appears the real driver is real estate value.

 

[phoenix2020]

@Mina I am trying to understand the magnitude of the numbers - millions of millions of $ per thousand people, is that the right y axis interpretation? If so, does that not translate to something on the order of $1B per person of net worth? Perhaps I am misunderstanding something.

 

[reflechissez]

Agreed. However, look at the period after 2008. Through 2013, net worth were still basically flat, despite 2009 and 2010 having some of the best stock performance in history (25.94% in 2009, for the S&P 500). So, it appears the real driver is real estate value.

Meh. Without breaking it out, you're just guessing. Lots of people wrongly sold out of equities in 2009.

 

[Mina]

@Mina I am trying to understand the magnitude of the numbers - millions of millions of $ per thousand people, is that the right y axis interpretation? If so, does that not translate to something on the order of $1B per person of net worth? Perhaps I am misunderstanding something.

Unfortunately, the way the graph works, it's good for showing relative values but tough to interpret as absolute values, because of how CPI works (it's an index, currently equal to 208.708). Basically, you'd need to take the value on the graph, multiply by whatever CPI was at the moment (to reverse out having divided by it earlier), then multiply by 1000 (since population is expressed in thousands), and that would give you the per-capita level of total household net worth minute federal debt. So, if the graph currently says 1.2, it would be $250,450 after multiplying by 208.708 and 1000.

 

[washunut]

A lot of news coverage has been given to the fact that in 2021 the net worth of billionaires shot up dramatically. What's been given less attention is that the net worth of poor and middle class Americans shot up even faster. Thanks to surging home values, higher stock values, and COVID rescue payments (which poorer people used to pay down massive amounts of debt), Americans saw an increase in net worth unlike anything since the Fed started tracking, and quite probably ever.

Anyway, I thought of an interesting way to visualize the change over time. Basically, take total household net worth and subtract the federal debt (so you have the net worth we'd be left with if we paid off the debt). Then divide by inflation (so that you're measuring real growth, rather than just inflated prices). Finally, divide by population (so that you're measuring per-capita growth, not just population growth). Here's what the result looks like:

View attachment 67388571

You can really see, there, how much of net worth is driven just by property values. For example, after the Q1 2007 peak, we had the housing collapse, with net worths falling dramatically and taking years to return to sustained growth.

Metrics have changed quite a bit since this chart was created. Would be interested to see what it is now. Two things, does Federal debt subtract the debt held by the Federal Reserve, the stock and bond markets have erased trillions of wealth in 2022.

 

[Mina]

Metrics have changed quite a bit since this chart was created. Would be interested to see what it is now. Two things, does Federal debt subtract the debt held by the Federal Reserve, the stock and bond markets have erased trillions of wealth in 2022.

No, the figure I used only takes the full federal debt into account. It would be interesting to recalculate using different measures -- for example, just federal debt held by the public, or better yet just the debt held by foreign and international investors (thus, not money that we effectively owe to ourselves). Here's that figure expressed as a share of GDP:

Federal Debt Held by Foreign and International Investors as Percent of Gross Domestic Product

Graph and download economic data for Federal Debt Held by Foreign and International Investors as Percent of Gross Domestic Product (HBFIGDQ188S) from Q1 1970 to Q4 2022 about foreign, debt, federal, GDP, and USA.

fred.stlouisfed.org

That strikes me as a particularly important measure, since it's value that theoretically exits our economy when we pay it back -- whereas if we pay back debt sitting in in a US government account, or held by a US investor, that money just tends to shift from some Americans (e.g., taxpayers) to others (e.g., T-bond holders), which still keeps it in the economy.

 

[Surrealistik]

A lot of news coverage has been given to the fact that in 2021 the net worth of billionaires shot up dramatically. What's been given less attention is that the net worth of poor and middle class Americans shot up even faster. Thanks to surging home values, higher stock values, and COVID rescue payments (which poorer people used to pay down massive amounts of debt), Americans saw an increase in net worth unlike anything since the Fed started tracking, and quite probably ever.

Anyway, I thought of an interesting way to visualize the change over time. Basically, take total household net worth and subtract the federal debt (so you have the net worth we'd be left with if we paid off the debt). Then divide by inflation (so that you're measuring real growth, rather than just inflated prices). Finally, divide by population (so that you're measuring per-capita growth, not just population growth). Here's what the result looks like:

View attachment 67388571

You can really see, there, how much of net worth is driven just by property values. For example, after the Q1 2007 peak, we had the housing collapse, with net worths falling dramatically and taking years to return to sustained growth.

Recall that this is an average where the fortunes of the wealthiest are actively and heavily distorting the graph which have benefitted an absolute boom in stock and real estate markets as you've noted until recently; these benefits have overwhelmingly accrued to a small rich minority (it also appears to, per your description, feature the subtraction of federal debt without accounting for total household debt).

I would be surprised if median household net worth revealed any kind of significant increase.

 

[Mina]

Recall that this is an average where the fortunes of the wealthiest are actively and heavily distorting the graph which have benefitted an absolute boom in stock and real estate markets as you've noted until recently; these benefits have overwhelmingly accrued to a small rich minority (it also appears to, per your description, feature the subtraction of federal debt without accounting for total household debt).

I would be surprised if median household net worth revealed any kind of significant increase.

I know it's hard to believe, but net worth actual rose MORE, in percentage terms, for the poor and middle class in 2021 than for the rich. And --again hard to believe-- household debt went DOWN relative to GDP. Specifically, at the end of 2020, the ratio of household debt to GDP was 81.95%. By mid 2021 (the last data available) it was 77.00%:

Household Debt to GDP for United States

View the ratio of debt incurred by resident households of the U.S. economy as a percentage of economic output.

fred.stlouisfed.org

Household debt service payments are slightly lower now, as a percentage of disposable personal income, than at the end of 2020, and even further below pre-pandemic levels. At the end of 2019, 9.93% of people's disposable incomes were spent servicing household debt , and now it's around 9.34%:

Household Debt Service Payments as a Percent of Disposable Personal Income

Graph and download economic data for Household Debt Service Payments as a Percent of Disposable Personal Income (TDSP) from Q1 1980 to Q3 2023 about disposable, payments, debt, personal income, percent, personal, households, services, income, and USA.

fred.stlouisfed.org

And that's down pretty sharply from the Bush administration days, when it cracked 13.17%.

When people are whining to pollsters, they tend to say they're worse off now than they were pre-pandemic. But in terms of net worth and ability to pay their debts, that's demonstrably untrue.

 

[washunut]

I know it's hard to believe, but net worth actual rose MORE, in percentage terms, for the poor and middle class in 2021 than for the rich. And --again hard to believe-- household debt went DOWN relative to GDP. Specifically, at the end of 2020, the ratio of household debt to GDP was 81.95%. By mid 2021 (the last data available) it was 77.00%:

Household Debt to GDP for United States

View the ratio of debt incurred by resident households of the U.S. economy as a percentage of economic output.

fred.stlouisfed.org

Household debt service payments are slightly lower now, as a percentage of disposable personal income, than at the end of 2020, and even further below pre-pandemic levels. At the end of 2019, 9.93% of people's disposable incomes were spent servicing household debt , and now it's around 9.34%:

Household Debt Service Payments as a Percent of Disposable Personal Income

Graph and download economic data for Household Debt Service Payments as a Percent of Disposable Personal Income (TDSP) from Q1 1980 to Q3 2023 about disposable, payments, debt, personal income, percent, personal, households, services, income, and USA.

fred.stlouisfed.org

And that's down pretty sharply from the Bush administration days, when it cracked 13.17%.

When people are whining to pollsters, they tend to say they're worse off now than they were pre-pandemic. But in terms of net worth and ability to pay their debts, that's demonstrably untrue.

Lets remember that a large portion of net worth for middle class is their house. That being said not many consider that as really being better off. Also the fed bail outs of 2020 and 2021 have ended so that has adversely impacted the lower and middle class. Lastly inflation especially for food ( both groceries and restaurants) have risen more than overall inflation, and more than wage increases.

 

[post]

A lot of news coverage has been given to the fact that in 2021 the net worth of billionaires shot up dramatically. What's been given less attention is that the net worth of poor and middle class Americans shot up even faster. Thanks to surging home values, higher stock values, and COVID rescue payments (which poorer people used to pay down massive amounts of debt), Americans saw an increase in net worth unlike anything since the Fed started tracking, and quite probably ever.

Anyway, I thought of an interesting way to visualize the change over time. Basically, take total household net worth and subtract the federal debt (so you have the net worth we'd be left with if we paid off the debt). Then divide by inflation (so that you're measuring real growth, rather than just inflated prices). Finally, divide by population (so that you're measuring per-capita growth, not just population growth). Here's what the result looks like:

View attachment 67388571

You can really see, there, how much of net worth is driven just by property values. For example, after the Q1 2007 peak, we had the housing collapse, with net worths falling dramatically and taking years to return to sustained growth.

How many in the bottom 40 percent do you expect own property such as housing?
64 percent of households are homeowners.

Unfortunately, the $30 trillion national debt works out to $90,000 per capita. The per capita debt share of the bottom 50 percent has eclipsed
any gain.

The Fed - Distribution: Distribution of Household Wealth in the U.S. since 1989

The Federal Reserve Board of Governors in Washington DC.

federalreserve.gov

In 2005, the bottom 90% wealth was $20.34 trillion, recently it is $42.98 trillion, 210% of the 2005 total
In 2005, the top 10% wealth was $36.17 trillion, recently it is $98.20 trillion, 270% of the 2005 total

 

[Mina]

Lets remember that a large portion of net worth for middle class is their house. That being said not many consider that as really being better off. Also the fed bail outs of 2020 and 2021 have ended so that has adversely impacted the lower and middle class. Lastly inflation especially for food ( both groceries and restaurants) have risen more than overall inflation, and more than wage increases.

I think that net worth in the house still represents real gains for the middle class (those who own houses, anyway), in that it functions as a retirement account. If you have a house worth $600k, and you're an empty nester and retire to something smaller that costs half as much, that's effectively like $300k you can live off in retirement.

That said, it plays out differently depending on where you live. If you live in, say, Manhattan, and you sell a median condo for $1.6 million and move to the sunbelt for retirement, you can get an amazing waterfront property for half that and still have enough left over to cover all your basic living expenses indefinitely. If, on the other hand, you live in, say, rural Kansas, with a median house worth $200k, you'll probably have to shell out more than the proceeds of that home to buy into a retirement area.

 

[Mina]

How many in the bottom 40 percent do you expect own property such as housing?
64 percent of households are homeowners.

Unfortunately, the $30 trillion national debt works out to $90,000 per capita. The per capita debt share of the bottom 50 percent has eclipsed
any gain.

The Fed - Distribution: Distribution of Household Wealth in the U.S. since 1989

The Federal Reserve Board of Governors in Washington DC.

federalreserve.gov

In 2005, the bottom 90% wealth was $20.34 trillion, recently it is $42.98 trillion, 210% of the 2005 total
In 2005, the top 10% wealth was $36.17 trillion, recently it is $98.20 trillion, 270% of the 2005 total

See here:

Hottest year since '84: who benefited in 4 charts - The Current

Measuring by net worth, it’s likely that the vast majority of Americans are better off than they were in 2020 – or even before the COVID-19 pandemic – meaning they have less debt relative to their assets. This is in no small part thanks to the trillions of dollars in pandemic-related spending by...

thecurrentga.org

Specifically:

".... net wealth of the bottom half jumped at the fastest pace. The bottom 50% saw their wealth grow 64% in 2021. That’s the biggest calendar-year growth of any of these groups since at least 1988, dwarfing the percentage gains of the richest..... The bottom half of Americans accounted for 5.5% of the country’s assets before the pandemic and at the end of 2021 owned 5.9%"

As you can see on the chart there, the 64% growth for the bottom 50% compares to just 17% for the top 1%.

Also:

"... the percentage gains were highest for people of color – 26% for African Americans and 24% for Hispanics. That compares with 14% for white Americans. As a result, the overall share held by white people fell to 83.6%, the lowest since at least 1988 and very likely the lowest ever. Black net wealth increased to 4.4% of the pie, the most since 1992....."

We're so used to hearing about how the rich are getting richer and everyone else is getting poorer that we have trouble processing when something deviates from the pattern. But the fact is 2021 was an extraordinarily good year for the poor and the middle class.

 

[Surrealistik]

I know it's hard to believe, but net worth actual rose MORE, in percentage terms, for the poor and middle class in 2021 than for the rich.

I have to confess, I'm not too impressed by % terms.

The fact is that by the Fed's numbers, the wealth of the top 1% grew at nearly 5 times the rate (6.17 T vs 1.26 T) of the bottom 50% from 2020 to 2021, and the poor have been getting rocked for decades on end:

The Fed - Distribution: Distribution of Household Wealth in the U.S. since 1989

The Federal Reserve Board of Governors in Washington DC.

www.federalreserve.gov

 

[Gimmesometruth]

Yes , again, if someone has little if any savings and received the two $1.4k payments, of course their wealth saw large percentage gains, but that is hardly anything to crow about.

As far as homeowners, yes, they saw gains in the value of their property, buy those wealth gains are not realized unless they sell, but the trade-offs in doing so are very substantial.

I'm somewhat happy that the stock markets are correcting a bit, I just hope the FED has not/will not overshoot on rate increases, the headwinds of new covid variants in the EU along with the effects of Ukraine have not filtered through yet.

 

[Mina]

I have to confess, I'm not too impressed by % terms.

The fact is that by the Fed's numbers, the wealth of the top 1% grew at nearly 5 times the rate (6.17 T vs 1.26 T) of the bottom 50% from 2020 to 2021, and the poor have been getting rocked for decades on end:

The Fed - Distribution: Distribution of Household Wealth in the U.S. since 1989

The Federal Reserve Board of Governors in Washington DC.

www.federalreserve.gov

Well, because the rich started out so much richer, even an infinitesimal proportional growth in their wealth will greatly outpace, in dollar terms, much more robust proportional growth for the poor and middle class. But that doesn't change the fact that 2021 was an extraordinarily good year for the poor and middle class -- so good, that they actually narrowed the wealth gap a bit in percentage terms.

I think it's important to acknowledge when things go right. I think one thing the left does wrong is relentless negativity, which causes people to just tune out. People need to know it's possible to move in the right direction, or they won't even try.

 

[Mina]

Yes , again, if someone has little if any savings and received the two $1.4k payments, of course their wealth saw large percentage gains, but that is hardly anything to crow about.

Why not? I think crowing about good things is important. As I said in my reply to Surrealistik, I think one of the mistakes the left makes is being so relentlessly negative -- so reflexively dismissive of any ray of light in the news -- that people just tune them out entirely. Motivating people requires both the carrot and the stick. Yes, warn them of how things can get worse, and show them examples of that. But also show them that the situation isn't hopeless -- that things can and do get better.

 

[ALiberalModerate]

I would rather get a mild recession over with soon than have a big crash later.

The 1982 recession wasn't mild. It was actually a very sharp, deep recession, but it was a V shaped recovery afterwards.

 

[ALiberalModerate]

I have to confess, I'm not too impressed by % terms.

The fact is that by the Fed's numbers, the wealth of the top 1% grew at nearly 5 times the rate (6.17 T vs 1.26 T) of the bottom 50% from 2020 to 2021, and the poor have been getting rocked for decades on end:

The Fed - Distribution: Distribution of Household Wealth in the U.S. since 1989

The Federal Reserve Board of Governors in Washington DC.

www.federalreserve.gov

Always pointing to the top 1% is an oversimplification that doesn't tell the true story of who is seeing the most wealth and income growth.

In reality, it is the top 20% that has been outpacing the bottom 80%. For example, household A has an income of $69,000 a year (which is about the median household income). Household B has an income of $200,000 a year. Both households get a standard raise of about 3% a year.

In 5 years, household A's income will be about $80,000 a year - an increase of about $11,000.

In 5 years, household B's income will be about $231,000 a year - an increase of about $31,000.

Of course, that only tells part of the story. Likely household B was able to purchase a home at younger ages then household A and thus build wealth more rapidly that way. They also are able to growth their retirement investments much faster than household A. Financially, a HSA compatible high deductible insurance plan makes a lot more sense for household B than household A, so they are able to keep their overall healthcare costs lower by simply paying out of pocket for routine care, an expense that household A likely does not have the disposable income for.

The solution is hard though. Household B earns much more than household A because likely, Household B has skills and aptitude that are in demand in today's knowledge economy. While household A has a fairly low federal tax burden - in fact if they have kids they possibly get back more than they pay in, Household B likely pays a fairly high overall federal tax rate and sees nothing tangible in return for it, so they unlikely to support any tax increases on themselves.

 

[StillBallin75]

The "poor" don't have ****ing houses or stock portfolios.

 

[Surrealistik]

Well, because the rich started out so much richer, even an infinitesimal proportional growth in their wealth will greatly outpace, in dollar terms, much more robust proportional growth for the poor and middle class. But that doesn't change the fact that 2021 was an extraordinarily good year for the poor and middle class -- so good, that they actually narrowed the wealth gap a bit in percentage terms.

I think it's important to acknowledge when things go right. I think one thing the left does wrong is relentless negativity, which causes people to just tune out. People need to know it's possible to move in the right direction, or they won't even try.

Even if we want to highlight such things and remain blindered by the exceedingly scant sliver lining, here's the bottom line:

The bottom 50%'s share of the economy per those same Fed numbers has increased by an infinitesimally small 0.7% from 2020 to 2021 and this has been a truly exceptional year; it has declined since 1990; the share of the top 10% and the top 1% in particular during that time has increased dramatically. In the grand scheme of things, this is truly a drop in the bucket.

Optimism is fine to be sure, but let's be clear eyed about what this represents, or doesn't. The systemic issues that underlie this toxic consolidation of wealth and power have not abated.

Always pointing to the top 1% is an oversimplification that doesn't tell the true story of who is seeing the most wealth and income growth.

In reality, it is the top 20% that has been outpacing the bottom 80%. For example, household A has an income of $69,000 a year (which is about the median household income). Household B has an income of $200,000 a year. Both households get a standard raise of about 3% a year.

In 5 years, household A's income will be about $80,000 a year - an increase of about $11,000.

In 5 years, household B's income will be about $231,000 a year - an increase of about $31,000.

Of course, that only tells part of the story. Likely household B was able to purchase a home at younger ages then household A and thus build wealth more rapidly that way. They also are able to growth their retirement investments much faster than household A. Financially, a HSA compatible high deductible insurance plan makes a lot more sense for household B than household A, so they are able to keep their overall healthcare costs lower by simply paying out of pocket for routine care, an expense that household A likely does not have the disposable income for.

The solution is hard though. Household B earns much more than household A because likely, Household B has skills and aptitude that are in demand in today's knowledge economy. While household A has a fairly low federal tax burden - in fact if they have kids they possibly get back more than they pay in, Household B likely pays a fairly high overall federal tax rate and sees nothing tangible in return for it, so they unlikely to support any tax increases on themselves.

Yes, the top 20% outpaces the bottom 80%, just as the top 1% outpaces them. The bottom line is that wealth is becoming unsustainably and poisonously consolidated and inequality is at a historic high; this is a serious, ongoing and intensifying problem. You don't need to employ basic middle school math to make a point I'm already abundantly aware of.

I will also note it is exceedingly foolhardy to assume that people get what they deserve in this economy and that it is largely fair and just, particularly given the calcified advantages of increasingly inaccessible quality higher education and intergenerational wealth and the US having some of the worst economic mobility in the developed world (not even touching on old haunts like systemic racism), and that leads to dangerous and inhumane places.