Family Incomes Slipped In 1st Part Of Decade ("Rich getting richer" alert)

The Associated Press ^ | Feb 24, 2006 | MARTIN CRUTSINGER

[Sam's Army]

WASHINGTON - After the booming 1990s when incomes and stock prices were soaring, this decade has been less of a thrill ride for most American families.

Average incomes after adjusting for inflation actually fell from 2001 to 2004, and the growth in net worth was the weakest in a decade, the Federal Reserve reported Thursday.

Many families were struggling in the aftermath of the 2001 recession and the bursting of the stock market bubble in 2000, the Fed's latest Survey of Consumer Finances showed. The comprehensive look at household balance sheets comes every three years.

Average family incomes, after adjusting for inflation, fell to $70,700 in 2004, a drop of 2.3 percent when compared with 2001.

That was the weakest showing since a decline of 11.3 percent from 1989 to 1992, a period that also covered a recession.

The average incomes had soared by 17.3 percent in the 1998-2001 period and 12.3 percent from 1995 to 1998 as the country enjoyed the longest economic expansion in history.

The median family income, the point where half the families made more and half made less, rose a tiny 1.6 percent to $43,200 in 2004 compared with 2001.

Economists said the weakness in the most recent period was understandable given the loss of 2.7 million jobs from early 2001 through August 2003, when the country was struggling with sizable layoffs caused by the recession, the terrorist attacks and corporate accounting scandals.

The weak income and the stock market decline in the early part of the decade, which wiped out $7 trillion of paper wealth, had an adverse impact on family balance sheets.

Net worth, the difference between assets and liabilities such as loans, rose by 6.3 percent in the 2001-04 period to an average of $448,200. That gain was far below the huge increases of 25.6 percent from 1995 to 1998 and 28.7 percent from 1998 to 2001, increases that were fueled by soaring stock prices.

The 2001-04 performance was the worst since net worth actually declined by 9.9 percent in the 1989-92 period.

The report showed that the slowdown in the accumulation of net worth would have been even more sizable except for the fact that homeowners have enjoyed big gains in the value of their homes in recent years.

The gap between the very wealthy and other income groups widened during the period.

The top 10 percent of households saw their net worth rise by 6.1 percent to an average of $3.11 million while the bottom 10 percent suffered a decline from a net worth in which their assets equaled their liabilities in 2001 to owing $1,400 more than their total assets in 2004.

"This is the continuing story of the rich getting richer," said David Wyss, chief economist at Standard & Poor's in New York. "Clearly, the gains in wealth are going to the top end."

Democrats used the new report to blast President Bush's economic policies, contending it would be wrong to make permanent his tax cuts, which primarily benefit the wealthy.

"These statistics show why, even though GDP is rising, most people do not feel better off," said Sen. Charles Schumer, D-N.Y.

The Fed survey found that the percentage of Americans who owned stocks, either directly or through a mutual fund, fell by 3.3 percentage points to 48.6 percent in 2004, down from 51.9 percent in 2001.

Analysts said this was an indication that investors burned by plunging stock prices in the decade's early years have been leery about getting back into the market.

The share of Americans' financial assets invested in stocks dipped to 17.6 percent in 2004, down from 21.7 percent in 2001.

Reflecting the housing boom, the share of assets made up by home ownership rose to 50.3 percent in 2004, compared with 46.9 percent in 2001.

The Fed survey found that debts as a percent of total assets rose to 15 percent in 2004, up from 12.1 percent in 2001. Mortgages to finance home purchases were by far the biggest share of total debt at 75.2 percent in 2004, unchanged from the 2001 level.

There was concern that families might start to feel even more squeezed as the cost of financing their debts increases along with rising interest rates.

Although surging home values have supported consumer spending in recent years, analysts worry about the economic impact if, as expected, the home price surge begins to slow this year.

"This report shows a race between factors boosting net worth, such as home ownership, and factors pushing the other way, such as weak wage growth," said Jared Bernstein, senior economist at the liberal Economic Policy Institute, a Washington think tank.

[staytrue]

Socialism with human face is better than capitalism without human face.

I can find a lot of examples of capitalism with a human face. I can not find any of socialism with a human face. Every time socialism is tried, it deteroirates into an Orwellian nightmare where everyone is equal but some are more equal than others.

[staytrue]

how can Red China be turning capitalist? It's not a question for you it just a question I often ask myself. My reply is, It cannot be.

In view of China's incredible economic growth over the past 20 years, it can only be capitalist. That is because socialism, communism or any other form has never produced that much in economic gains.

[mojojockey]

I think it is human nature to be a Capitalist.

[Sam's Army]

Jeez, is that the background on this one? Unreal.

Also, I can't think of another country where the poor are so well off that they all have electricity and cable TV.

[A. Pole]

I especially love his theory that socialism with a face (Communist Poland) is superior to American capitalism.

I did not say it. I said that socialism in post-Stalin Communist Poland was superior to the capitalism in some oligarchical Latin American countries. WHY DO YOU TWIST MY WORDS? Is it because you are losing the debate?

Very funny coming from someone who left that workers paradise to come to heartless America.

I did not come to Central America.

I have a question for you. If you had the choice to live the life of an average person in Communist Poland of 1960s/1970s or in El Salvador of the same time, what would be your choice?

[WilliamofCarmichael]

RE: "In view of China's incredible economic growth over the past 20 years. . . ."

After decades of Mao's great leaps upon the backs of tens of millions of citizens killing them all of a sudden the Chi-coms saw the light and developed their economy all by themselves?

My point was that there is a need for a social contract to have true capitalism. Deng's version of Lenin's NEP ain't it.

I believe it is accurate to say that all of the largest enterprises are state owned though some may include private shareholders. But like socialist economies the Red China Communists are now allowing small enterprises to function.

The old Soviet Union had a similar "capitalist" phase when Lenin realized that socialism could not build the economy fast enough (if at all). His New Economic Plan (NEP) lured Western useful idiots (his description) into Russia and USSR citizens were allowed a free market. Soon the Soviet "nepmen" were 40 percent of the economy and alarming Communist ideologues. End of NEP. End of nepmen.

Deng, et al. studied NEP and even grilled Armand Hammer about his experiences.

IMO the Chi-coms are not about the end NEP -- instead they will continue to steal intellectual property first driving Western useful idiots out of Red China's domestic market and finally replacing them in western markets as much as possible. All the more to build the PLA war machine. Thanks, 'free traders."

[staytrue]

If you had the choice to live the life of an average person in Communist Poland of 1960s/1970s or in El Salvador of the same time, what would be your choice?

My recollection was that el salvador in the 70's was run by a socialist dictator. It was not capitalist or a democracy.

Further, civil war generally puts a damper on lifestyle, no matter what the govt. or economic system. Virtually any peaceful capitlist democracy (after a few years) will outshine Poland of the 60's and 70's.

[Sam Cree]

"The extreme stratification of wealth HELPS socialism to win. Wide distribution of wealth PREVENTS victory of socialism."

My point is that, in a free market society, the creation of wealth, even tremendous wealth, generally increases the wealth and raises the standards of living of the entire society. The idea that wealth is gained at the expense of the lower classes is the fallacy.

Stratification means lack of mobility upwards or downwards, which is not usually symptomatic of free market societies in which all are allowed to participate.

"Wide 'distribution' of wealth" by central authority *is* socialism, or at least a major component of it. Once the state has the power to distribute our property, it has the means to totalitarian power.

I read your link to the little essay from Aristotle on "arete." I much enjoyed it and agee that it makes some very good points. Unfortunately, IMO, in this context it comes close to being a justification for rationalism and for the sentiment "from each according to his ability, for each according to his need." The point being that in a free society it is not up to the state but to the individual to define through the use of reason (and instinct) his own personal "arete" or virtue.

Beyond which, I believe that those who have accumulated great wealth have done this not so much because they are greedy for riches, or because they are driven to do good for mankind. They achieve it because they are pursuing their own personal dreams and visions, or even just because they are good at something and find joy in doing what they are good at. A free society does not prohibit this, nor does it define the personal dream of the individual.

Please forgive me for the delay in response, I mashed a finger under a heavy log and am not typing so well.

[A. Pole]

My point is that, in a free market society, the creation of wealth, even tremendous wealth, generally increases the wealth and raises the standards of living of the entire society.

"a free market society" is a dream. It never existed, it does not exist and it will NEVER exist.

The idea that wealth is gained at the expense of the lower classes is the fallacy.

It is not a fallacy. Throughout the whole history the wealth was "gained at the expense of the lower classes". Remember the golden rule: "who has the gold, rules".

[Sam Cree]

I am not referring to the complete lack of law, as you ingenuously suggest, but the opposite.

Other than that, you are incorrect on all counts.

Would you mind explaining to me why it is that you vote Republican, if that is indeed what you do?

[A. Pole]

Would you mind explaining to me why it is that you vote Republican, if that is indeed what you do?

Because I am pro-life, I am for the real true marriage, because I am for the national sovereignty and not for the globalism and because I opposed to the atheism, materialism and secularization. And so on ...

[Sam Cree]

Thanks.

[Toddsterpatriot]

I especially love his theory that socialism with a face (Communist Poland) is superior to American capitalism.

I did not say it.

B.S. You constantly attack America and capitalism in America. You think we need nationalized health care to compete in world markets. Remind me which of those countries with nationalized health care has had the economic growth and low unemployment we have.

WHY DO YOU TWIST MY WORDS? Is it because you are losing the debate?

Which debate? The which is better, Communist Poland or America debate, I think your journey here shows the winner of that debate.

And I love your tagline In 2001 top 5% owned 60% of national wealth, while bottom 60% owned 4%. What are the equivalent numbers in Poland? That bottom 60% in America, what is their net worth? How does that compare to net worth in your precious Poland? You favor the estate tax because you worry about stratification. How is stratification in your precious Poland?

If things are so terrible in America, you can always go home. We have enough ungrateful citizens in America, they're called Democrats.

If you decide to stay in America, maybe you should shut your ungrateful, immigrant pie-hole.

[A. Pole]

If things are so terrible in America, you can always go home.

Even if your insinuations were right there is no Communist Poland anymore :). If you are so tired with Democrats, two party system, regulations, taxes, safety net, redistribution and trade unions, why YOU don't go so some nice Latin American country where they are not burdened with such things?

[A. Pole]

If you decide to stay in America, maybe you should shut your ungrateful, immigrant pie-hole.

If you do not like open debate and freedom of speech why don't YOU move to a country with dictatorship?

[expat_panama]

The idea that wealth is gained at the expense of the lower classes is the fallacy.   ...It is not a fallacy.... 

Poor people tend to believe that the only way to get rich is by taking money from others, and rich people believe is the only way to get rich is by making something that people want and selling it to them.

Let's put aside our beliefs, and let's look.   What really happens is that all people (both rich and poor) tend to get rich at the same time, and that generally all incomes drop when one does.   This is because when times are good, all people make valuable things and sell them --they create wealth.   Those that just try to take wealth go to jail.

[A. Pole]

Poor people tend to believe that the only way to get rich is by taking money from others, and rich people believe is the only way to get rich is by making something that people want and selling it to them.

Let us take the Latin American oligarchies as the example. Are they rich "by making something that people want and selling it to them"? And who make the things - the workers or the owners?

Kennedies and Bushes are very rich, what do they make?

[Sam Cree]

Nice chart.

People do tend to improve their lot in free societies, even if it takes them more than one generation to make it happen.

The one major instance in America that I can think of where such a thing did not happen (as much) is with the black population, which was kept, both through legal and private means, from participating fully in our society. Apparently however, blacks were making great strides forward economically even during the 50's, well before the end of segregation. I believe though that there is now some "stratification" of inner city blacks, most likely it can be attributed to such redistributive practices as welfare and by the central government's habit of rewarding women for having illegitimate children.

[A. Pole]

You are confusing the income with being rich (the rich do not need to have high income!).

Comparative incomes of each 1/5 of households (1967=1)

Do you have the graph "comparative WEALTH of each 1/5 of households (1967=1)"?

First 1/5 has about 85%, next 1/5 about 11%, next 1/5 about 4% and bottom TWO/5 about 0.2%. So bottom 3/5 (60%) owns about 4%.

See my tagline.

[Sam's Army]

C'mon! Everyone knows the Bushes are rich due to illegal kickbacks from Halliburton and drug trade!

The Kennedy's are rich cuz, well, they care about the little guy and they deserve it!

(Heavy, dripping sarcasm)