Some will try to tell you that stock ownership in America is very broad, and that the middle class is going to be suffering -- as shareholders -- if we don't bail out ... whoever. The oil companies, the banks, etc.
They are telling the truth, sort of. Not the whole truth, of course, but the sort of truth that leads you to the conclusions they need for you to reach. The sort of truth, too, that most of us would like to believe is true.
Much depends on how we define the "middle class." I'm going to pick a definition that I don't think is ideal, but for which the data is readily available. It comes out of the Survey of Consumer Finances, as reported in a Federal Reserve Board Study called Currents and Undercurrents: Changes in the Distribution of Wealth, 1989-2004. I'm going to define the middle class here as the 40% of us whose net worth places us above the median in net worth, but below the top 10% of the wealth spectrum. By that measure, half of us are below middle class, and 10% of us above it. Here is how aggregate net worth is divided among the three groups:
- below middle class - 50% of us - 2.54% of the aggregate net worth [23.8% of income];
- middle class - 40% of us - 27.95% of the aggregate net worth [40.0% of income];
- upper class - 10% of us - 69.50% of the aggregate net worth [36.1% of income] [source: Table 2, line 1, and Table 1, line 29 here]
And indeed, the data shows that stock ownership in 2004, the most recent Survey of Consumer Finances to have been published (the next, for 2007 data, will likely be published early in 2009), had expanded significantly from 1989 to 2004: for individual stocks, held outside of retirement accounts or mutual funds, ownership rates had gone from 16.9% to 20.7%. So one in five households has some individual stock holdings. [Table 5, line 8, same page.] In this "middle class 40" group, individual stock ownership is 27.8%.
Mutual funds are held by 15.0% of households overall, and 20.0% of the "middle class 40."
Retirement assets (that is, IRA's and 401(k) accounts and the like) are held by 49.7% of households, and within the "middle class 40," 67.7% have such an account.
And if we are simply going to look at the number of people who hold the various kinds of assets, certainly the "middle class 40" are a large share of them:
- Stocks: 11.1 out of the 20.7
- Mutual Funds: 8.0 out of 15.0
- Retirement Assets: 27.1 out of 49.7
The "upper class 10" are also a significant share, but of course there are only one quarter as many in that pool:
- Stocks: 6.3 of the 20.7
- Mutual Funds: 4.7 of the 15.0
- Retirement Assets: 8.2 of the 49.7
So it appears that the majority of the holders of Stocks, Mutual Funds and Retirement Assets are in that "middle class 40" and that those who say that the shareholders being wiped out are mostly middle class are telling the truth, right?
Truth, yes; whole truth, no.
When we start to look at how much each group holds, we come away with a very different picture.
Stocks: Average holdings per holder for all groups is 179 [Source: same page, Table 7, line 8, column 7. Here's how it breaks out by group:
- Below Middle Class 50 - average holdings 7
- "Middle Class 40" - average holdings 34 (or about 19% of the average)
- Next 5% - average holdings 133
- Next 4% - average holdings 380 -- or about twice the average of 179
- Top 1% - average holdings 2,713 -- or about 15 times the average.
Mutual Funds: Average holdings per holder for mutual funds are a bit higher, at 207.
- Below Middle Class 50 - average holdings 10
- "Middle Class 40" - average holdings 71 (or about 1/3 of the average)
- Next 5% - average holdings 168
- Next 4% - average holdings 443 -- or above twice the average of 207
- Top 1% - average holdings 2,603 -- or about 13 times the average.
Retirement Assets: Average holdings per holder for retirement assets is 136 -- less than for stocks or mutual funds.
- Below Middle Class 50 - average holdings 16
- "Middle Class 40" - average holdings 96, or 71% of average.
- Next 5% - average holdings 329 -- above average!
- Next 4% - average holdings 504 -- or about four times the average of 136
- Top 1% - average holdings 1,109 -- or about 8 times the average.
So when someone tries to say convincingly that a lot of middle class people are going to be seriously affected, ask which middle class they're talking about, and how the effect on them compares to the effect on the 10% who are better off than they are.
So how much does each group hold? [Source, same page, Table 3, lines 8, 9, 10 and 32]
Stocks:
- "Below Middle Class 50" - 0.6%
- "Middle Class 40" - 10.3%
- "Upper Class 10" - 89.2%
Mutual Funds
- "Below Middle Class 50" - 0.7%
- "Middle Class 40" - 18.2%
- "Upper Class 10" - 80.1%
Retirement Assets
- "Below Middle Class 50" - 3.4%
- "Middle Class 40" - 38.3%
- "Upper Class 10" - 58.3%
And for the three asset classes combined,
- "Below Middle Class 50" - 2.0%
- "Middle Class 40" - 26.0%
- "Upper Class 10" - 72.0%
"Well," you might say, "those holdings are what put them in the top 10%, so of course they hold lots of them!"
Not exactly. Of the $50.25 trillion aggregate household net worth in 2004, those three asset classes represented $3.7t, $3.1t and $6.8t respectively. Vehicles were $1.9t, houses were 19.1t. But the single asset class most closely associated with being in the top 10% was not stocks, mutual funds or retirement assets, nor was it bonds. Rather, it was "business" -- that is, equity in a privately held business. In aggregate, that value was $9.8t, or 19.6% of aggregate household net worth.
And while 11.5% of households reported having business equity, and almost half of them -- 5.8% -- were in that "middle class 40" group, their holdings were pretty meager. The average holdings for all holders of business equity was 856 -- quite a bit higher than the sum of the other three asset classes above:
- Below Middle Class 50 - average holdings 21
- "Middle Class 40" - average holdings 157, or 18% of average.
- Next 5% - average holdings 366 -- or 43% of average!
- Next 4% - average holdings 1,219 -- or about 142% of the average of 856
- Top 1% - average holdings 8,503 -- or about 10 times the average.
This is what is known as "small business" or "main street" since it isn't traded on any stock exchange.
So how does ownership of business equity stack up?
- Below Middle Class 50 - 0.3%
- "Middle Class 40" - 9.2%
- Next 5% - 5.7%
- Next 4% - 22.4%
- Top 1% - 62.3%
So let's compare this with the sum of stocks, mutual funds and retirement assets $(13.5 trillion):
- "Below Middle Class 50" - 2.0% t
- "Middle Class 40" - 26.0%
- "Upper Class 10" - 72.0%
versus business equity (9.8 trillion) held by:
- "Below Middle Class 50" - 0.3%
- "Middle Class 40" - 9.2%
- "Upper Class 10" - 90.5%
Mitt Romney is a fine example of this top 1% who hold 62.3%. Cindy McCain also fits into this category. Most of those with Hedge Fund wealth fit in this category.
How's it trickling?
Is this what democratic capitalism, which President Bush praised the other evening, has produced? Do we want more of the same, or do we need to look beyond what either of the two major parties are offering? Who is more likely to move us toward a more widely shared prosperity, and who is more likely to seek to concentrate the gains more heavily?
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