Currents & Undercurrents, Rolling Tides, and Ponds & Streams

In 2003, Arthur Kennickell wrote a paper entitled A Rolling Tide: Changes in the Distribution of Wealth in the U.S., 1989-2001, summarizing the 2001 Survey of Consumer Finances.

The 2006 study, of 2004 data, was entitled Currents and Undercurrents: Changes in the Distribution of Wealth, 1989-2004.  Aggregated tables adapted from that study are at http://www.wealthandwant.com/issues/wealth/90-9-1_Tables.html and more detailed tables are at  http://www.wealthandwant.com/issues/wealth/50-40-5-4-1.htm.

I awaited the newest study with curiosity both for what it would show and how AK would title it. 

The 2009 study, of 2007 data, is entitled Ponds and Streams: Wealth and Income in the U.S., 1989 to 2007.

The title is well chosen: it recognizes that wealth is a stock, and income a flow.  The study doesn't find large changes in wealth distribution since 2004, but it goes more deeply into the interconnections of wealth and income.

The studies are based on the Survey of Consumer Finances, conducted every third year since 1989 by the Federal Reserve Board.

Here are some highlights:

• In 2007, the wealthiest 1 percent of families owned 33.8 percent of total family wealth, the next wealthiest 9 percent owned 37.7 percent, and the rest owned 28.5 percent.
• The Gini coefficient for income was 0.575 in the 2007 survey, about 30 percent smaller than the corresponding value for wealth.  (The Gini coefficient is a measure of concentration of ownership, and ranges from 0.00 to 1.00; a Gini of 1.00 indicates that 1% of the population owns 100% of the asset.) 
• Over the 1989–2007 period, capital gains rose more markedly than mean income, which rose about 28 percent in real terms. As an indication of the size of the capital gains, house prices, according to the OFHEO House Price Index adjusted simply using the CPI-U-RS, rose 46 percent over this time, and publicly traded shares, according to the correspondingly adjusted Wilshire 5000 Index, rose 179 percent.
• The strongest signal ...  is a 3.9 percentage point decline in the share of total wealth held by the group between the 50th and 90th percentiles of the wealth distribution, with the top 5 percent of the distribution approximately absorbing the shift.

Reviewing the extremely detailed tables, I want to share a few highlights from the 2007 data, first on net worth, from Table A3a:

• The bottom 50% of us had 2.5% of the net worth.  The next 40% of us had 26.0% of the net worth.  That left 71.5% to be shared among the top 10%, of which the aforementioned top 1% held 33.8%. [Table A3a] 
• The bottom 50% of us had 6.1% of the assets.  The next 40% had 29.0%, and the top 10% held 64.9%; the top 1% held 29.6% of assets.
• Debt is distributed differently: The bottom 50% of us had 26.7% of the debt; the next 40% had 46.6%, leaving only 26.7% for the top 10%, of which 5.3% is held by the top 1%.
• 68.6% of us owned homes; 48.7% had mortgage debt against those homes.  (The comparable figures from the 2004 SCF were 69.1% and 47.9%; the former difference is significant; the latter may not be.)
• Looking at households ranked by net worth:

1. the bottom 50% of households, which had 2.5% of the net worth, received 22.4% of the income 
2. the next 40% of households, who had 26.0% of the net worth, received 36.3% of the income
3. The next 5% of households, with 11.1% of the net worth, received 8.3% of income
4. The next 4% of households, with 26.6% of the net worth, received 16.6% of the income
5. The top 1% of households ranked by net worth, with 33.8% of the net worth, received 16.4% of the income.  

Turning to the data on households ranked by income [Table A4a and A4b]:

• The bottom 50% of us received 14.6% of the income.  The next 40% received 38.2% of the income.  That left 47.2% for the top 10%, of which 21.4% went to the top 1%.  (In 2004, the bottom 50% received 15.8% of the income, then next 40% received 41.4%, leaving 42.7% for the top 10%, of which 17.2% went to the top 1%.)

Of the aggregate income growth from 2004 to 2007, 55.8% went to the top 1%; 24.0% went to the next 4%, and the remaining 20.2% went to the bottom 90%.

Of the aggregate net worth growth from 2004 to 2007, 27.7% went to the top 1% of income recipients; 30.1% to the next 4%, and 42.2% went to the bottom 90% of income recipients.

Wages dropped for the bottom 50% and for the 2nd 5%.  However, the top 1% garnered 44.7% of the increase in wages, and the next 4% got 55.9%.

Looking at households ranked by income:

1. the bottom 50% of households, who received 14.6% of the income, held 12.3% of the net worth
2. the next 40% of households, who received 38.2% of income, held 28.3% of the net worth
3. the next 5% of households, who received 10.0% of the income, held 10.9% of the net worth
4. the next 4% of households, receiving 15.8% of the income, had 22.3% of the net worth
5. the top 1% of households, ranked by income, received 21.4% of the income and had 26.2% of the net worth.

So the question seems to be "How's it trickling?"  Is it trickling down, or is the flow in the other direction? And how do we correct it, without theft? 

Post scripts:

I wonder what the 2010 study's title will be -- Puddles, Rills and Oceans?

I refer you to Michael Kinsley's observation in the WaPo a few days ago:

Perusing the Forbes 400 list of America's richest people, it's striking how few of them made the list by building the proverbial better mousetrap.  . . .  Dozens of Forbes 400 fortunes derive from the rising value of land or other natural resources. These businesses are fundamentally different from mousetrap building. Land does not need to become "better" to increase in value, and that value increase doesn't produce more land.

I talk here from time to time about the FIRE sector -- finance, insurance and real estate.  A few months ago I might have had difficulty convincing many people that "insurance" is part of the problem.  But in view of AIG, of PMI, of title insurance (as reported by David Cay Johnston in Perfectly Legal), I don't think I have to make the case that the FIRE sector has managed to get the rules set up so that they reap what the rest of us sow.

Comments

[George12]

Hi,

The society is facing problems with such laws. This has to go legal and it’s needed to be sorted at the earliest.

George,

Laptop Fanatic