Dark Corners in “Good Places”

By Karen Petrou and Matthew Shaw

Shortly before Thanksgiving, a new study documented that U.S. life expectancy since 2010 has taken a sharp turn for the worse for younger Americans regardless of race, gender, or education.  We knew that opioids were devastating, but this study confirmed others showing also that the overall reversal in U.S. life expectancy is due to more profound and mysterious afflictions.  Doctors are flummoxed by why U.S. mortality is so much higher than that in other advanced countries, where life expectancy continues to increase for younger citizens, concluding that something endemic is going on behind the epidemic of “diseases of despair.”  The latest inequality data demonstrate yet again that the economic “good place”  that comforts Fed policy-makers is to be found only in the 100^th floor penthouses that are the eyries of the one percent.  We thought the data more than dispiriting when we analyzed the Fed’s first distributional financial account; now, we find them devastating, not to mention evil omens of a polarized, angry electorate heading to the 2020 polls.

The Resplendent One Percent

Most striking among the recent data is that the top one percent now has 32.4% of U.S. wealth, with top one percent wealth growing nearly $3 trillion in the first half of the year.  The bottom fifty percent did grow its infinitesimal share of the national wealth pie to only 1.9%.  Despite increased wealth resulting from very recent, much-touted working-class wage gains, the wealth of the top one percent and the 90-99 percent groups each grew over the first half of the year by more than the total wealth of the bottom 50 percent.

One reason for continuing U.S. wealth inequality is investment in equities.  Equity values for the top one percent grew $2.02 trillion in just six months and, although the 2019 share dropped a bit, equity values still rose by $1.22 trillion for the 90-99 percent group.  Notably, equity holdings for the bottom fifty percent rose more than 27% in value in just six months.  Their actual equity positions pale in comparison with higher-wealth households, but some wealth is better than none and equities have done far better in recent years for lower-wealth households than any other asset class.

As we have noted, U.S. monetary-policy transmission theory is still premised on the relationship between lower rates and higher spending, but upper-wealth households on which the economy now depends do not borrow much no matter how low rates go.  The debt of the top one percent dropped during the first half of 2019, but the bottom fifty percent’s non-mortgage liabilities were 166% of the value of the durable goods they owned.  In the Fed’s economic “good place,” household debt isn’t worrisome because most households are said not to be highly leveraged.  As is often the case with aggregate data, this conclusion is belied by a harder look at lower-income households who stand at sharp and immediate risk if anything goes wrong. 

Looking behind totals also shows awesome U.S. inequality judged by race or ethnicity.  Little changed from the end of last year to June of 2019, white wealth share was 85% and that for African-Americans was 4.4%.  Hispanic wealth share was 3.2%, and others held 7.4%.  To put this into context, non-Hispanic whites were only 60.4 percent of the U.S. population as of the most recent Census Bureau data.  In terms of hard cash, whites held $91 trillion; blacks owned $4.7 trillion. 

Now versus Then

One might say that June of 2019 marks an aberrant blip in U.S. inequality.  This would of course ignore buckets of data demonstrating insidious inequality beginning in about 1982 and a rocket-ride up after 2010.  Looking over just the generational shift from about 2000 to now using only the Fed’s distributional account data, we see that the top one percent’s 32.4% wealth share is up 8.5 percentage points from 1989; the flip side comparison for the bottom ninety percent shows a parallel drop of 8.5 percentage points.  Middle-class – i.e., the 50-90 percent group – wealth is now less than 89 percent of top one percent wealth in comparison to 1989, when it was 148 percent.

Now versus Later

Middle-class nations are typically middle-of-the-road electorates, but the U.S. is no longer a middle-class nation.  What all these data show is that millions of American voters lost an amazing amount of economic ground since they cast their first vote thirty years ago.  They are deeper in debt, lower in wealth, and even farther behind a very few very comfortable households safely ensconced in the economic “good place.” 

Now, one percent of the population owns more than the entire middle and working classes – 90 percent of the population – combined.  Disaggregate these data to focus only on those with below-median wealth or racial and ethnic minorities and economic inequality is still greater and anger even more acute.

Early next year, we will turn from these distributional data to an in-depth assessment of how income and wealth also divide in states critical to the federal election’s outcome.  We’ll also assess the most recent public-opinion data germane to inequality to forecast how distributional trends since 2018 and overall shifts in U.S. prosperity over the past thirty years are likely to drive ballot-box decisions.  Will Americans be even more frightened that the federal government will take away what little they have, turning to populists, or will they want rapid, redistributional change of the sort pressed hard by progressive Democrats?  Data drive only part of the answer, but that part could well prove decisive.