Welcome to the first post on Wealth Economics. I’ve been meaning to put together a series of intro posts here, but I haven’t gotten to it. So I’ll just start with an item I got curious about recently, that others may also find interesting (or just…curious). Here you go:
A post and graph by Jon Schwartz at The Intercept caught my eye:
The Wealth of America’s Bottom 50 Percent Has Doubled During the Pandemic Years
Pretty eye-popping. The data is courtesy of Josh Bivens of the Economic Policy Institute. (Wealth knowers will know that it comes from the Fed’s Distributional Financial Accounts, or DFAs.) Says Jon, “The net worth of the poorer 50 percent has doubled since the first quarter of 2020.” From $2T to $4T. (For reference, total household assets are about $154T in the latest DFA release. Liabilities are $18T.)
My question: how did all that wealth arise? Where did it come from? What kind of assets did the bottom 50% accumulate?
Here’s the answer, both for the bottom 50% of wealthholders that Bivens looks at, and for the bottom 60% of income recipients. (The DFAs offer both looks, but with different percentile-group breakouts.*)
In both cases the big asset growth (in rapidly decreasing order) comes from:
1. Real estate (holding gains from home-price increases).
2. Consumer durables (vehicles and other stuff purchased by households and posted to their balance sheet as long-lived assets).
3. Accumulated “cash” — mainly checking/money-market balances. (This is what pundits like to vaguely gesture at when they talk about “'excess ‘savings’.’”)
Now, appreciated home values are very much “real wealth.” Ask anyone in or near retirement; if their home is worth more, they can spend more now and in retirement. Real estate values are somewhat volatile, but they go up over years and decades.
But still, the two big asset increases aren’t “cash” assets that people can/will spend immediately. Those kind of short-term holdings have only increased by about $200b in the wealthholder chart.
There are lots of other ways to slice, dice, and interpret this data, but I’ll keep this post short. Any questions or thoughts in the comments are much appreciated. Cheers.
* To get this detailed asset-type breakout, you need to download the full zip file of DFA .csv files, then use the "networth-levels-detail" and "income-levels-detail" files.
Did the Bottom 50% Get (Lots) Richer During Covid?
So it's b.s. is what I'm inferring. Conservative economists want to frame a snapshot of appreciating home values as evidence that there's actually no financial crisis holding back the low and middle classes. "Nothing to see here, folks!" Thanks for helping us regard the fine print. Sheesh as usual. (Good work, Steve. Keep writing in this short style about things that catch your eye. Don't wait.)