American Family Wealth: 1989-2019 – An Economist That’s an Interlocutor

Total family wealth equals the value of assets, including financial and housing assets minus the value of debt. The Congressional Budget Office recently published “Trends in Household Wealth Distribution, 1989 to 2019” (September 2022). Here are some of the topics that caught my attention.

In 2019, total household wealth in the United States — the sum of the assets of all families minus their total debts — was $115 trillion. This amount is three times the total real family wealth in 1989. Total family wealth, measured as a percentage of the country’s gross domestic product, is estimated to have increased from about 380 percent to about 540 percent over the 30-year period from 1989 to 2019, according to bureau estimates. Central Oman. … From 1989 to 2019, the total wealth held by families in the top 10 percent of the wealth distribution rose from $24.3 trillion to $82.4 trillion (or 240 percent), the wealth held by families in the 51st to 90th percentile
From $12.7 trillion to $30.2 trillion (or 137 percent), and
Wealth held by households in the lower half of the distribution increased from
$1.4 trillion to $2.3 trillion (or 65 percent).

There are several points worth stopping here. First, the wealth/GDP share has fluctuated, but in the long run it remained at around 360% of GDP from the 1950s through the early 1990s. In fact, I remember learning in the 1980s that, for quick and dirty arithmetic, wealth/GDP can be considered a constant. But since then, the wealth/GDP ratio has taken off, not only in the US but around the world. Part of the reason is the rise in stock market prices. The part is the rise in housing prices. One of the key questions for financial markets is whether this high wealth/GDP ratio will persist: in particular, to what extent the gradual decline in interest rates since the 1990s that has helped raise asset prices will return to interest rates that are more in line with levels Historical lead to permanently lower asset prices?

Second, the growth in wealth has been uneven: households at the top of the wealth distribution now hold a greater share of wealth than in the past. The community notes that differences in wealth are related to many factors, such as age, marriage, and education. But while these factors can help explain differences in wealth at a point in time, it is not clear to me that changes in these factors can explain increasing wealth inequality. Instead, I feel that rising wealth inequality is a version of the “Matthew effect,” as economists sometimes say. In the New Testament, Matthew 12:13 (in the New King James Version) reads: “For to him who has, more will be given to him, and he will be in plenty. And he who does not have will be taken from him what he has. In the course of wealth, those who invested benefited to some extent. Already in the stock and housing market by the mid-1990s, for example, from the asset boom in those areas; those not already invested in those areas have less chance of growing pre-existing wealth.

Third, it is worth remembering that for many people, especially young and middle-aged people, their main wealth lies in their skills and training – “human capital” – which allows them to earn higher wages. For example, imagine a recent lawyer or doctor, who may have large student debts and have not yet had the opportunity to accumulate much financial wealth, but whose skills and credentials mean that personal wealth is widely understood to include the human capital that will generate decades of Future income is already high.

Finally, the pattern of wealth accumulation over the life cycle appears to be changing. In this graph, note that those born in the 1940s have significantly more wealth when they reach their 60s than the previous generation who were born in their 30s. However, the generation born in their fifties is on a downward path: their average wealth in their late fifties is lower than what was accumulated by the generation born in their forties. Working down to modern generations, each line is less than the previous generation: that is, each generation accumulates less wealth than the previous generation at the same age.

CBO writes: However, for cohorts born since the 1950s, median wealth as a percentage of median income was lower than this measure for the previous cohort at the same age, and median debt as a percentage of median assets higher. “

The CBO report also provides some updates during the first quarter of 2022, as total wealth and stock market held up well during the pandemic recession. But since April, US stock markets are down about 20%, and the above totals and dividends will have to be adjusted accordingly..

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