Posted on 02/24/2006 6:24:09 AM PST by 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.
Not according to the CIA World Factbook:
The onrush of technology largely explains the gradual development of a "two-tier labor market" in which those at the bottom lack the education and the professional/technical skills of those at the top and, more and more, fail to get comparable pay raises, health insurance coverage, and other benefits. Since 1975, practically all the gains in household income have gone to the top 20% of households.
My guess is that if a rising economic tide lifts all boats, the bottom 80% would have seen significant gains along with the top 20%.
Well, I was with you until you said socialism is based on the desire to help. I would say that may be true of a few of the masses who get duped into it. But I would say that by far most of the masses are driven by greed, envy (of those who are richer), and fear (socialism promises security).
I have often thought that capitalism requires that the people in the system have Christian beliefs and character: in the words of our founders, that they are driven by "self-interest rightly understood." I think Ayn Rand makes the mistake of self-interest wrongly understood (it's all about me and my personal self-fulfillment).
I think capitalism with a "Christian" face, so to speak, would mean that one leaves something to be gleaned, referring to the practice prescribed in the Old Testament where the corners of fields were not harvested so that the poor would have access to food--but they had to do the work of harvesting it for themselves, so their characters were not ruined. Capitalism with a "Christian" face means that through our free wills we provide for those who are needy through no fault of their own through our families, churches and communities in ways that build strong character.
Just my 2 cents.
Thanks for your note! But the names on the deeds are still the names on the deeds. They have mortgages and they still have to buy lots of things for their homes, regardless of how long they live in them. Ownership is still, Well, ownership.
As part of my first paragraph in post 62, I also meant to say that for a few (those behind the push for it) socialism is driven by the desire to control.
It's worth noting that the bottom tier of U.S. families -- as measured in terms of household income -- include a disproportionate number of single-parent households. The mere fact that there is only one adult in these households is a huge impediment to their financial mobility. Even a household with one spouse who works outside the home and one "stay-at-home" parent will almost always have a higher income than one with a single parent.
I'd like to hear an economist explain the model where the "rich get poorer, and the poor get richer".....
Even in communism and socialism, they both just get poorer.
(notwithstanding corruption)
And yet there are numerous examples of workers willingly foregoing wage increases and even accepting wage cuts when their employer is in trouble. Its when the sacrifices are one sided that resentment grows.
You forget one very important item: Home building. That has been very strong and is likely to remain so as long as interest rates don't balloon out of proportion. True, the "pig in the python" in that biz has probably passed the middle of the creature, but it is still extremely strong in many parts of the country.
The program you refer to is silly and stupid. I agree. That's a small portion of home ownership in America, however. Very small.
Reminds me of Habitat for Humanity - one of those well-intentioned programs that ultimately leads to Hell. Like when the house increases in value and the owner now cannot pay the tax bill. Great idea, Jimmah!
I find your posts very informative and very helpful. Thank you.
Not exactly -- I said that many who promote socialist ideas are motivated by a genuine desire to help. Not all, but many. And I think that's true.
I agree with you about what socialism promises and produces, and also with the fact that causes more harm than good. But it has a powerful attraction, and it behooves us to understand where it comes from. Part of the attractions are greed and envy -- but greed and envy don't convince skeptics; rather, socialism promises to address the cases of unfairness and misfortune that we can recognize for ourselves. The problem with socialism is that it perverts our good intentions.
I have often thought that capitalism requires that the people in the system have Christian beliefs and character: in the words of our founders, that they are driven by "self-interest rightly understood."
Very much agreed. I can point to the treasures in my own city of Colorado Springs which were given to the community by seriously wealthy men and women who thought it their duty to give back. They're still revered, and we're all better off.
Yup. Good point.
Argentina comes to mind.
That may in fact be correct -- until it finally crashes and burns, and people end up having to fend for themselves again.
I can't remember whose "law" it is -- William Rusher's, perhaps -- that states, "any organization that is not explicitly conservative will become more liberal over time." Empirical observations tend to bear that out.
The CPI absolutely includes food and energy. The core rate removes those two items from the calculation because, by removing the volatility, underlying trends are better identified. Food, as a percentage of total household budget, has declined over the past 30 years.
From the BLS:
7. What goods and services does the CPI cover?
The percentage of interest-only-with-no-down-payment.loans you cite for Georgia is at least matched by California. "A hi tech form of renting." Good description.
I have no real problem with it however. As I recall Japan has multi-generation home loans and a 75-year mortgage may be coming here soon.
What I do have a problem with is the inane comparison of past generations to this one vis-a-vis home ownership.
You expressed it well by asking,
"Can you really classify these people as homewoners in the classical sense?"
Yes, at one time "burning the mortgage papers" at retirement age was once considered ideal. That's home ownership.
You make some excellent points and thanks for the Old Testament reference.
The social contract I suppose is 'self-interest rightly understood' and enforced.
Which begs a question IMO -- 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.
The usual screams of "Socialist!" and snotty questions like, "So you want government to take care of you?" are mostly missing.
Thanks, all.
(Oh, and no one has posted personal attacks on Mr. Green, so far.)
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