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According to the Federal Reserve, the collective wealth held by the bottom 50% of U.S. households has nearly doubled since 2019 to $3.7T. These households now hold a bigger share of the nation's wealth than they've had in 20 years. (Bloomberg) |
NH: Usually, when you see headlines about wealth inequality, the message is that it’s getting worse.
But according to Bloomberg, federal pandemic aid and a strong labor market have put the poorest Americans in their "strongest financial position" in decades. The magazine's breathless headline reads: "America's Inequality Problem Just Improved for the First Time in a Generation."
The reporter cites data from the Federal Reserve, which show that the bottom 50% of Americans (currently, households with net worth of $166,000 or less) now hold a bigger share of the nation’s wealth than they’ve had in two decades. The amount of wealth they possess ($3.7T) nearly doubled from 2019 to 2021.
All of these figures are correct. But the conclusion that Bloomberg draws from them is at best premature and in any case exaggerated.
Most of the gains that the poorest Americans have seen over the past generation began shortly after the GFC, not after the pandemic. Most of this gain has been the result of debt reduction, not asset acquisition.
By any reckoning, they hardly own any assets, and what gains they did make after the pandemic is merely the result of soaring housing prices.
What's more, if you look at the next rung on the economic ladder (the 50-90%), its share of wealth has declined more than the bottom rung has gained. In short, the big picture is not nearly as happy as Bloomberg suggests.
Let's start with what Bloomberg gets right. The share of wealth held by the bottom 50% of Americans has indeed risen rapidly since the pandemic began. In Q1 2022, it was up +1 percentage point YoY.
The last one-point gain took place over seven years. Wages are rising at the fastest pace in decades, with the lowest earners seeing the biggest percentage-point gains. Stimulus funds, enhanced unemployment benefits, and tax credits helped these households save in 2020 and 2021.
But the first thing Bloomberg gets wrong is the timing. This shift in wealth was underway well before the pandemic. The share of wealth held by the bottom 50% of Americans increased steadily beginning around 2011.
Over the same period, the median family income rose and the poverty rate fell to the lowest level in two decades. (See “Did Poverty Decrease in 2020?” and “The Share of Uninsured Americans Levels Out After ACA.”) In the ten years post-GFC, we experienced the nation’s longest economic expansion in history.
Not only has this shift been underway for a long time, but it's a lot less impressive when we look at assets. While the wealth (that is, the net-worth) share of the bottom 50% has gone up, their asset share has not.
The GFC left many households in the bottom 50% heavily indebted, and the increase in wealth largely reflects a decline in debt, not rising asset ownership.
It was only recently that the bottom 50% saw a large increase in their share of total assets. That's partly the result of stimulus payments piling up in their bank accounts. But most of it is the result of the big run-up in housing prices since late 2020, something Bloomberg doesn't even mention.
You might wonder why real estate would have this effect on the bottom 50%. Well, it turns out that real estate constitutes well over half of their assets, a much larger share than for more affluent groups.
The bottom 50% may not have any financial assets or pension assets or small business equity. But a lot of them do own a home-- along with an automobile (see "consumer durables") whose price index has also seen a nice recent bump.
This chart also explains why the top 1% has done so well since the pandemic. They are disproportionate owners of the one other asset class whose price has jumped since the early pandemic days: corporate and privately held business equity.
Finally, I think Bloomberg's basic premise is misguided. The article talks about the change in the wealth share of the bottom 50% as if this represents a good indicator of overall wealth inequality.
But the bottom 50% of wealth (as opposed to income) is actually a very poor indicator of economic inequality. Why? Because the least-wealthy 50% have never owned very much. Their share of total wealth is a mere 2.8%. The top 1% holds 31.8%, the 90-99% hold 37.3%, and the 50-90% own 28.1%.
For a better understanding of how overall wealth inequality in America is actually changing, it makes more sense to look at what’s happening among those who are much more likely to have assets: the 50-90%. Here, the picture is not positive.
During the pandemic, their shares of wealth and assets have continued to decline, as they have since the GFC.
Twenty years ago, this comfortably middle-class swath of American households possessed 35.8% of total wealth. Today it is 28.1%, a record low and a decline of 7 percentage points. Even the very affluent, the 90-99% group, has lost ground since the pandemic lockdown hit.
If I were to sum up what happened to wealth in the first two years of the pandemic, the first takeaway would be that in relative terms, the very richest Americans (the top 1%) certainly got richer.
Middle-class and affluent Americans (the 50-99%) certainly got poorer. And the poorest Americans (the 0-50%), who ordinarily don't have much wealth, certainly got richer.
But they still aren't very rich. And the dominant drivers of their extra wealth share--a bit more cash and the housing and auto price run-up--are most likely temporary.
With a probable recession looming and with the stock market, housing prices, and auto prices decelerating rapidly, none of these groups is feeling particularly flush anymore.
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ABOUT NEIL HOWE
Neil Howe is a renowned authority on generations and social change in America. An acclaimed bestselling author and speaker, he is the nation's leading thinker on today's generations—who they are, what motivates them, and how they will shape America's future.
A historian, economist, and demographer, Howe is also a recognized authority on global aging, long-term fiscal policy, and migration. He is a senior associate to the Center for Strategic and International Studies (CSIS) in Washington, D.C., where he helps direct the CSIS Global Aging Initiative.
Howe has written over a dozen books on generations, demographic change, and fiscal policy, many of them with William Strauss. Howe and Strauss' first book, Generations is a history of America told as a sequence of generational biographies. Vice President Al Gore called it "the most stimulating book on American history that I have ever read" and sent a copy to every member of Congress. Newt Gingrich called it "an intellectual tour de force." Of their book, The Fourth Turning, The Boston Globe wrote, "If Howe and Strauss are right, they will take their place among the great American prophets."
Howe and Strauss originally coined the term "Millennial Generation" in 1991, and wrote the pioneering book on this generation, Millennials Rising. His work has been featured frequently in the media, including USA Today, CNN, the New York Times, and CBS' 60 Minutes.
Previously, with Peter G. Peterson, Howe co-authored On Borrowed Time, a pioneering call for budgetary reform and The Graying of the Great Powers with Richard Jackson.
Howe received his B.A. at U.C. Berkeley and later earned graduate degrees in economics and history from Yale University.
