I found some interesting charts over at Credit Writedowns this morning. These charts actually originated elsewhere, then were commented on by Barry Ritholtz at the Big Picture, then added to by Credit Writedowns, and now I’ll add my two cents.
The first chart shows how household net worth has changed over the past 59 years.
You can clearly see the effects of the two historic bubbles of the past half century.
John Lounsbury at Credit Writedowns then added his own chart …
According to Lounsbury’s calculations, households were in a giddy bubble since about 1997, with one break. Now, we’ve fallen out of the bubble completely to the bottom of the “normal” range.
Lounsbury adds: “What we have is a demonstration that there has not been a decline in the level of household prosperity compared to most of the history reviewed, merely from a bubble of household prosperity. As is the case with all bubbles, they are not sustainable. When it comes to household net worth, we have simply gone back to what was a long standing relationship.”
Now here’s my two cents. Some uncomfortable statistics …
- 66% of the income growth between 2001 and 2007 went to the top 1% of all Americans.
- Only the top 5% of U.S. households have earned enough additional income to match the rise in housing costs since 1975.
- In 1950, the ratio of the average executive’s paycheck to the average worker’s paycheck was about 30 to 1. Since the year 2000, that ratio has exploded to between 300 to 500 to one.
- The top 1% of U.S. households own nearly twice as much of America’s corporate wealth as they did just 15 years ago.
So, while the view at Credit Writedowns may be that we are back to “normal” — and that’s true to a point — I would say that “normal” has changed. The very rich are much, much richer than they used to be, and the middle class is being squeezed out of existence. The upper middle class won’t be far behind.
{ 2 comments… read them below or add one }
time to get rid of tax dodges used by the top 1%? I don’t subscribe to punitive tax rates that are being bandied about, just get rid of the loopholes currently used by by these guys and bring in some of the bottom 30-45% of people who pay nothing… If the lower income people actually were affected by taxes, they would be more likely to put pressure on the gov’t to cut stupid spendeing…
As a middle classer myself, and SOB (son of a banker), my father spent 60 years doing banking as it should be. In 97 or 98 when they took down Glass-Stegal I asked him what he thought, because his whole life was spent either in the depression or under the GS bill. His answer was “they are doing it for greed, not wisdom”. And he followed with “they think they are too big to fail…and they will be right”. I did not know what he meant at the time, but asked if he thought we could go through another Great Depression. His answer, “Now more than ever”. As it all played out in 2008 I began to see what he meant. Anyone with a brain could see what was happening with the bubble in housing. Greenspan would talk about great gains made in productivity spurring the economy, when intelligent people knew free-money loans of housing spured it. So with that background I make the following comments: There is no hope spending can be cut unless there is full control of both houses & white house, and that WILL NOT work because we have such a perverted and uneducated populace that can’t even understand how to balance their own personal budget, muchless understand why Washington should. People will not vote for cuts without skin in the game. So I am in agreement that lower income people should pay taxes, regardless of how little they make. Everyone should share to support spending so they have a concern to reduce spending. And as much as I hate to say it, to reduce the deficit there has to be higher taxes on all, but temporaily more onto those who have money. This country made the middle class by redistributing some wealth, either through tax breaks to those who employ, or programs to support education. If we had not, the US would be like Mexico. And any tax breaks to the upper earners should be targeted to firms and individuals who bring back manufacturing and employment in this country in order to broaden the middle class through employment. Do I have hope? No! Somewhere along the way spending got perverted into wasteful pork spending, which is what Washington does. So my thought is the US will painfully grind the middle class into a narrower few. Then their will be a revolt and overthrow.