
Wealth Levels, Wealth Inequality, and the Great Recession [pdf] - kevin818
http://web.stanford.edu/group/scspi/_media/working_papers/pfeffer-danziger-schoeni_wealth-levels.pdf
======
nickff
This study is misleading, because it uses 'household' wealth, instead of
individual wealth, and may be incorrectly interpreted as showing a decline in
the middle class, when it is really showing the results of changes in family
structure over the past 50 years. This graph shows how this choice affects the
results:
[http://1.bp.blogspot.com/-g3WZGpDibPM/Up3ZAPRtScI/AAAAAAAAJq...](http://1.bp.blogspot.com/-g3WZGpDibPM/Up3ZAPRtScI/AAAAAAAAJqE/5hWGdOBol_E/s1600/a-gini-
ratio-us-households-families-individuals-1947-2012.png)

The following blog-posts go in to more detail:

[http://politicalcalculations.blogspot.ca/2013/12/the-
major-t...](http://politicalcalculations.blogspot.ca/2013/12/the-major-trends-
in-us-income.html#.U6n7UfldUpV)

[http://politicalcalculations.blogspot.ca/2013/12/the-
widows-...](http://politicalcalculations.blogspot.ca/2013/12/the-widows-
peak.html#.U6n7UvldUpV)

[http://politicalcalculations.blogspot.ca/2013/12/the-men-
who...](http://politicalcalculations.blogspot.ca/2013/12/the-men-who-werent-
there.html#.U6n7U_ldUpV)

~~~
Retric
Supporting 1 person on x income is harder than supporting two people on 2x
income. Put simply, a couple does not need two stoves, and any shared trip is
less expencive etc. There are a few edge cases at the individual level for
things like end of life care and taxes, but the overall economic bennifits are
huge.

~~~
thrownaway2424
On the other hand, 1 person with x income pays less income tax than 2 people
with 2x income.

~~~
jahewson
The US has joint filing for married couples so that's not the case, whereas it
would be in e.g. the UK.

~~~
quicklyfrozen
It most certainly is the case in the US...
[http://en.wikipedia.org/wiki/Marriage_penalty](http://en.wikipedia.org/wiki/Marriage_penalty)

~~~
Retric
It's a generally around a 1/2 a % penalty which is swamped by other benefits.

AKA 2 incomes of $87,850 x2 = 175 700 vs extra 879$ in taxes.

At extreme incomes of say 20+M a year or below 18k it's actually far less than
1/2%.

However, there are huge benefits for SS for being a married couple even more
so if there is a large income disparity, so on average if they plan ahead
Marriage tends to lower taxes. On top of lower expenses which enable better
tax avoidance mechanisms.

------
alexeisadeski3
Long story short:

The wealth of non rich Americans is almost entirely contained in their highly
leveraged houses. If housing prices collapse, their wealth collapses.

In 2008, housing prices collapsed.

~~~
cwal37
Not exactly. The 25th percentile's wealth was dropping even before the
recession, which suggests some additional downward pressure, although I am not
sure what that could be off the top of my head.

~~~
araes
My suspicion is that it may be due to the inflation adjusted real wage
effects, which hit the bottom 25th percentile the hardest, as that is
generally their only source of income, and their resulting margin for wealth
storage is so much closer. [1] Honestly, real wage income has been flat since
about 1965, and for many has been going down since the great recession. [2]
And if you only got high school or less, well, you're just boned. [3] (Note,
take sources with a grain of salt, as they're 5 minute Google searches)

[1]
[http://1.bp.blogspot.com/-aGE47oMJAQw/UhZtjjtKorI/AAAAAAAAJz...](http://1.bp.blogspot.com/-aGE47oMJAQw/UhZtjjtKorI/AAAAAAAAJz8/Ot1MeYCjnzo/s1600/Screen+Shot+2013-08-22+at+4.27.44+PM.png)

[2] [http://www.pgpf.org/Chart-
Archive/~/~/media/A130E85DDC064B81...](http://www.pgpf.org/Chart-
Archive/~/~/media/A130E85DDC064B81A89A777E06C589C7.gif)

[3] [http://www.frbsf.org/wp-
content/blogs.dir/1/files/1106bb.gif](http://www.frbsf.org/wp-
content/blogs.dir/1/files/1106bb.gif)

~~~
alexeisadeski3
That would explain only a slowing in the rate of wealth increase, not a
decrease in wealth.

~~~
araes
Not necessarily. Everybody has a burn rate for money, as a natural feature of
living in a market economy where we do work for pay. At its minima, its the
cost to meet Maslow's needs. In the worst version, if our pay goes below the
absolute minima, then we'll likely be eating our wealth, looking for other
support, going homeless, or dying.

Unfortunately, we also tend to be habit creatures, and our burn rate often
stabilizes to our pay and our social class (keeping up with the Jones'). If
our real wage starts to go down, then we often have trouble adapting, and keep
burning as if we were still at the prior equilibrium (credit card debt, eating
into savings, taking out loans).

This is made even worse when the source of real wage reduction is the subtle
erosion of our buying power through inflation. We complain about how much
things cost, but we still see our paychecks slightly increasing so it seems
good, and the burn gets worse.

------
araes
Project it back a few years, and I'd bet we're poorer on average as a country
than we were when I was born. Man, 43% decline for the median? Ouch.

I also like that the mean wealth in America is 6x the median wealth.

Actually, I find the numbers for the 75th+ percentiles a bit surprising, as my
mental model had them with significant uptick after about 2011 or so. Kind of
a wealth transfer from the lower percentiles. Whereas, this research seems to
show that while erosions were smaller for the top (due to their non-real
estate growth), no demographic they researched showed overall wealth _growth_
from 2007 on. At best, they've gotten back to zero slope.

~~~
Paul_Dessert
I saw a chart a few weeks back depicting this. Starting in the early 80's it
started heading downward. I can't find it at the moment, but if I do, I'll
post a link.

A lot of factors contribute but housing was one of the major factors. "Net
worth" was/is tied directly to their home and the 2006/07 crash. With the
government screwing with the markets and investors buying homes as rentals, we
just might see another sharp decline shortly...

[http://www.zerohedge.com/news/2014-06-24/americas-most-
impor...](http://www.zerohedge.com/news/2014-06-24/americas-most-important-
housing-market-signals-red-alert-housing-bubble-watchers)

------
jebblue
I didn't read anything about how the increasing numbers of older Americans who
are not working might have a significant bearing on the matter.

edit: What I'm saying is, America has a baby-boomer generation that is
retiring in droves, more power to them but don't do a study at a major
university sounding alarm bells unless an important factor like a massively
retiring baby boomer generation is considered.

------
cloverich
Here's a problem I have with the definition of "wealth".

My wife in I, who recently finished professional schools, earn (combined) in
the top 5%. But because of our student debt, when I do a "wealth" calculator,
I'm apparently literally at the bottom of the wealth chart - 0%. Leads me to
question:

1\. Is College attendance increasing, or decreasing over time?

2\. Is price of College attendance increasing, or decreasing over time?

I suspect both increasing. Would that explain some (or most, or all?) of this
phenomenon? Average or lower income individuals will mostly go from positive
to negative to put themselves through school, while rich or upper class will
not. Would be interested how much of the phenomena that would explain.

------
alukima
The wikipedia article on Income inequality in the United States is
surprisingly detailed and I highly recommend it if you have any interest on
wealth. It's such a polarized topic that the comments almost immediately turn
into inaccurate or out of context talking points.

[http://en.wikipedia.org/wiki/Income_inequality_in_the_United...](http://en.wikipedia.org/wiki/Income_inequality_in_the_United_States)

~~~
alexeisadeski3
Income and wealth are quite different topics...

~~~
jmstriegel
On that note:

[http://en.wikipedia.org/wiki/Wealth_inequality_in_the_United...](http://en.wikipedia.org/wiki/Wealth_inequality_in_the_United_States)

[http://en.wikipedia.org/wiki/Affluence_in_the_United_States](http://en.wikipedia.org/wiki/Affluence_in_the_United_States)

------
hashberry
The average American is not wealthy. The median net worth is $45K [1], which
is below Japan, Canada, Australia and much of Western Europe.

[1] [http://money.cnn.com/2014/06/11/news/economy/middle-class-
we...](http://money.cnn.com/2014/06/11/news/economy/middle-class-
wealth/index.html)

------
mattm
It's depressing how 1/4 households basically have no wealth at all.

~~~
alexeisadeski3
If you take a minute to consider the demographics involved and the nature of
wealth, it is neither depressing nor surprising nor even "bad".

Consider, for example, that many people have negative wealth.

~~~
TaylorAlexander
Consider what factors, and in what way?

Also, whether or not something is depressing, surprising, or bad is entirely
subjective. Something you do not consider surprising may in fact be surprising
to another individual, so without knowing them it's sort of silly to say "it
isn't surprising". If they say it is surprising, it means to them it was. If
you do not think others should be surprised, it may be useful for you to
explain what knowledge you have that prevented your being surprised.

~~~
alexeisadeski3
To be wealthy means that one possesses sufficient wealth (stuff) to live
comfortably even after they quite their job.

The bastardized term of "wealth" used here, however, refers simply to material
possessions even when not in sufficient quantities to provide any passive
lifestyle advantages; suddenly a paid off car worth $5,000 is "wealth." The
estimated $30,000 in equity I possess on my $200,000 home is "wealth". It's
all a bit frivolous.

By definition, the poor and middle classes don't possess true wealth. Their
value is their human capital and time, which they exchange for money. Even the
"working rich" \- doctors and lawyers - don't routinely possess "wealth" in
the traditional sense of the term.

Then we compare the $30,000 equity I possess to actual wealth... such as the
land under a shopping mall. What is the use in such an exercise?

NEWS FLASH: People who own really valuable stuff possess really valuable
stuff. The rest of us don't. Let's write books about this and study the
shocking phenomenon?

You simply can't compare actual wealth - such as the land under a shopping
mall, which generates sufficient revenue for many people to live comfortably -
to "wealth".

Now, demographically... Why would anyone be surprised that a significant
portion of the population has zero wealth? Honestly I'm surprised it's only
25% who have zero. How much "wealth" should a university student have? How
about someone who's been working for a few years? How about someone who's been
retired for twenty years and expects to die within the next ten?

Middle class people gradually build up a small stock of "wealth" (we used to
call this "savings") throughout their working careers. Then after retirement
they gradually draw it down until they die.

So yes, it is not surprising that many people have zero or negative wealth.

~~~
Paul_Dessert
"Middle class people gradually build up a small stock of "wealth"" That's part
of the point. As the chart in this study shows, the middle class is not
building anything. In fact, it's declining.

~~~
alexeisadeski3
I wonder if a large cohort of middle class individuals have recently retired.

------
kostyk
The Socialist Revolution is coming?

