Growth in Inequality of Wealth: 1979-2007

(Return to the Contents Topics page.) Wealth is equivalent to “net worth,” the total of assets minus liabilities.  Assets include money and liquid assets like stocks, bonds, mutual funds and retirement accounts, as well as physical assets such as works of art or musical instruments, vehicles, and real estate.  Liabilities include all debt obligations, such as consumer loans and mortgages, and credit card debt. In our discussions of the growth of income inequality, we noted that total income share of the top 1% was 23.5% in 2007.   As the Working Group on Extreme Inequality points out, net worth in the U.S. is even more unequal than income: “In 2007, the latest year for which figures are available from the Federal Reserve Board, the richest 1% of U.S. households owned 33.8% of the nation’s private wealth. That’s more than the combined wealth of the bottom 90 percent.  The top 1% also own 50.9% of all stocks, bonds, and mutual fund assets.” [1] These facts are shown on the following pie charts.  The first [2] shows the 2007 distribution of U.S. Wealth: Notably, the top 10% holds 71.5% of U.S. wealth in 2007.   The second chart [3] shows that the top 1% holds an even higher percentage of total investment securities, reflecting to some degree the more even distribution among income groups of the 2007 value of residential homes.            The top 10% held 90.3% of all securities wealth in 2007.  The bottom 50% essentially had zero net worth. People can’t imagine this degree of inequality. In a 2005 study by Michael Norton of Harvard Business School and Dan Ariely (of Duke) on the subject of wealth inequality, [4] individuals in a nationally representative online panel were asked to (1) estimate the current US distribution of wealth and (2) describe what they thought would be the “ideal” wealth distribution.              The chart shows that those taking part thought wealth inequality should be reduced from what they estimated, but more importantly that they dramatically underestimated the then-current level of wealth inequality: The top 20% actually held about 25% (about $16 trillion) more of total wealth, and the bottom 60% actually held only about 20% as much as they estimated. From 1979-2007, the bottom 99% lost about 17% of its wealth While discussing economic growth, we emphasized that it is impossible to know what would have happened over the last 30 years without the Reagan Revolution.  We know, however, that wealth inequality was directly increased by the tax cuts for the rich, because the tax cuts were saved by the rich, increasing their wealth.  The tax cuts enabled the wealthy to retain more of their incomes and capital gains generated by corporate profits from consumers, so these increases were essentially direct transfers of wealth from the bottom 99% to the top 1%.  Other wealth was generated through government spending.  Tax revenues avoided by the rich and corporations had to be replaced by budget deficits and debt.  Thus, the government debt created over the last 30 years directly financed more wealth for the wealthy. [5] The increase in the percentage of total wealth held by the 1% due to the Reagan Revolution rose considerably up to 2007, and the percentage held by the middle class and the entire bottom 99% declined commensurately.  That is not to say that the bottom 99% lost that much wealth directly to the top 1%, for the economy did grow (albeit at a reduced rate), and much of the increased wealth of the top 1%, as just mentioned, was financed by federal debt.  But real incomes remained flat or declined for most of the bottom 90% over the thirty years up to 2007, and in recent years their savings declined and became negative.  Thus, the wealthy were rapidly increasing their wealth, and their share of total wealth, while of the rest of the American people gained no wealth at all. The following graph shows the percentage share of household wealth held by the top 1% from 1922 to 1998: In 2007, before the 2008 crash and the Great Recession, total U.S. wealth was $66 trillion.  [6]  The top 1% held 33.8% of the total 2007 net worth of $66 trillion, or $22.3 trillion.  Had its percentage of total wealth still been 20.5%, as it was at the start of the Reagan Revolution in 1979, its total wealth would be $13.5 trillion.  Thus, in increasing its share of total wealth via the Reagan Revolution and its tax cuts, the top 1% gained $8.8 trillion. JMH – 4/11/11 (updated 11/10/11) __________ [1] http://extremeinequality.org/ The Working Group also notes: “Median net worth in 2007, the latest year for which figures are available, was $120,300. * * * “The total inflation-adjusted net worth of the Forbes 400 rose from $502 billion in 1995 to $1.6 trillion in 2007 before dropping back to $1.3 trillion in 2009.” [2] Source: Institute for Policy Studies; see Business Insider; also Philip Davis, seekingalpha.com. (6/26/08) [3] Arthur B. Kennickell, “Ponds and Streams: Wealth and Income in the U.S., 1989 to 2007,” Federal Reserve Board Working Paper, January 7, 2009, Figure A3a, p. 63. (Does not include assets held in money market mutual funds or tax-deferred retirement accounts.) [4] See NPR interview, 10/7/2010. [5] The top 1%’s increased percentage of wealth was entirely at the expense of the bottom 99%.  (Put another way, economic growth since 1980 was less than it would have been because the  greater wealth inequality, so there was no increased growth for the bottom 99% to share in, arguably offsetting some of the wealth it was losing to the top 1% through greater wealth inequality.  Thus,  all wealth gained by the top 1% was wealth lost to the bottom 99%.) [6] Provided by Usfirstgov for Wikipedia.  After the crash, wealth fell to $48 trillion in 2008 and rebounded to $54 trillion in 2009. (Return to the Contents Topics page.)

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