The Wealth of America’s Bottom 50 Percent Has Doubled

Last month, Sen. Bernie Sanders, I-Vt., tweeted about a new report he requested from the Congressional Budget Office. The report included a chart showing the shockingly small amount of wealth owned by the poorer half of American households compared to everyone else.

In fact, the wealth of the bottom 50 percent was so small it barely shows on the chart. Moreover, it had remained modest since 1989 — even when the net worth of the top 10 percent of Americans had skyrocketed, more than tripling.

But the CBO report only provided those numbers through 2019. What’s happened since then during the pandemic years? Certainly the situation must be even worse today, after the last few years of high inflation. Just listen to what the Washington Post said in September after the Federal Reserve’s recent big rate hike:

Fed Chair Jerome H. Powell said more hikes were likely — and they would hurt, slowing growth and weakening the job market. Unfortunately there is no other good way.

Inflation must be stopped. Mr Powell stressed that Americans are already suffering from rising prices and those on low incomes have been hit hardest.

So let’s take a look at this chart from the Fed, which only shows the net worth of the bottom 50 percent of households, and runs from 1989 through the second quarter of 2022:

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graph

St Louis Federal Reserve and Josh Bivens, Economic Policy Institute

Amazingly, the last few years have not been an economic disaster at all for the bottom 50 percent of US households, as measured by this metric. In fact, they were arguably the best of the past 30 years. That’s not to say America’s poorer people live in clover – they don’t. But this way, it’s a significant improvement from the past: The net worth of the poorer 50 percent has doubled since the first quarter of 2020 and is now the highest in U.S. history.

The story the graphics tell is straightforward and, until recently, quite dark. The US economy is twice as big as it was in 1989, so one would expect the net worth of the bottom 50 percent to have gradually increased over this period until it also doubled.

That didn’t happen. As of 1989, the combined net worth of the poorer 50 percent was $1.7 trillion in current dollars. During the Clinton administration, it slowly crept up to $2.3 trillion in today’s money.

But it didn’t go anywhere for most of George W. Bush’s presidency.

Then, during the Great Recession caused by the bursting of the housing bubble, the net worth of the poorer 50 percent plummeted along with house prices. Then it slowly crept back up into the first quarter of 2020. It has since skyrocketed and is now over $4 trillion. (The Fed measures this slightly differently than the CBO, but the overall direction is the same in both sets of data.)

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The improved financial situation of Americans is also reflected in other data. In 2013, just 50 percent of Americans said they could raise $400 to cover emergency expenses like fixing a broken-down car. Now 68 percent do (although that number isn’t adjusted for inflation, so $400 today isn’t the same as it was in 2013).

Why and how did this happen? And what does that mean?

First, real wages have not been decimated by inflation. That is, even when prices have risen, wages have largely kept pace. The real median wage even rose sharply at the beginning of the pandemic; It’s fallen sharply since then and is now almost exactly as high as it was in the first quarter of 2020. (The increase wasn’t quite as significant as it might seem — it was partly due to the huge increase in the number of low-wage workers who lost their jobs to have). Beginning of the pandemic, so the decline in the median wage is not as sharp as unemployment falls.)

graph

Federal Reserve St. Louis

Perhaps half of the increase in wealth is due to an increase in home equity, thanks both to the rise in house prices and to inflation, which is reducing the value of fixed-rate mortgages. The federal government has also provided plenty of financial support to the bottom 50 percent through the 2020 CARES Act, expanded unemployment benefits, and the 2021 child tax credit and more. Along with low unemployment and increased worker leverage, that’s most of the explanation.

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So we have a story of two competing stories.

According to the Washington Post and many other outlets, “low-income people have been hit hardest” by recent inflation, and we need to slow down the economy (and cut wages and increase unemployment) to their advantage.

By the actual numbers, these are good times for many, many Americans in the poorer 50 percent. That doesn’t mean millions aren’t struggling, but the financial prospects for most have historically been even worse in a world of low inflation, a situation that hasn’t drawn the warm concern of the corporate media. What we should focus on now is keeping the streak going, not forcing the workforce into submission.

What happens next — and whether the modest surge in financial security that has ensued for the bottom 50 percent over the past two years lasts — will largely depend on which story we believe. From now on, the people at the top of US policy will choose what is not based on actual numbers.

Updated: October 21, 2022 5:00 PM ET
This story has been updated to include home ownership as one of the factors driving wealth growth for the bottom 50 percent.



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