Frederick Reese
Since the 2008-2009 financial crash, the U.S. stock market has more than doubled in value. Since the Dow Jones Industrial Average (DJIA) bottomed out March 2009 at 6,547.05, it has risen to a near-record-breaking 14,075.37, as of Wednesday. For the wealthiest tier of society, the economy is in a boom cycle, with personal and household wealth increasing on a daily basis. Despite the fact that some economists are predicting a drop in stock values later in the year, the wealth curve appears to be continuing its upward trend.
Unfortunately, this prosperity is reserved for only the wealthiest 7 percent of the population. According to the Pew Research Center, between 2009 and 2011 the wealthiest 7 percent saw their household net worths jump 28 percent, or from an average of $2,476,244 to $3,173,895. During the same time frame, the mean household net worth of the remaining 93 percent of the population dropped 4 percent, from $139,896 to $133,817.
In other words, for 93 percent of the American population, there has been no recovery from the recession.
Inequitable growth
The reasons for this are many, but one is that recent growth in the American economy has focused on security markets — particularly the stock market and the Federal Reserve’s purchase of Treasury bonds (pushing Treasury yields upward) — in which wealthier households are more likely to have heavily invested. According to Pew, households that have a net worth in excess of $500,000 own 72 percent of the nation’s aggregate net worth and 81 percent of the nation’s aggregate financial assets.
According to the same study, the national mean value of interest-earning assets held outside of a bank rose from $164,342 in 2009 to $803,641 in 2011. The average value in stocks and mutual fund shares rose 51 percent, from $151,507 to $228,643. Business equity rose 14 percent, from $158,163 to $180,046. 401(k) and thrift savings plan accounts went up 57 percent, from $76,086 to $119,799.
During the same period of time, bank-held assets fell 19 percent in value, from $27,275 to $22,170. Home equity fell 16 percent, from $150,771 to $127,290, and rental property equity fell 32 percent, from $547,462 to $370,013. For households with a net worth of less than $500,000, the percentage that held regular checking accounts and the percentage that held stocks and mutual fund shares dropped 3 percentage points.
The average equity in private home ownership dropped during the housing freeze that accompanied the financial crisis. Because many households under the $500,000 threshold that own multiple houses would rent the extra property out as a significant part of their investment portfolio, the slide in housing values influenced the aggregate net worth for such households.
More pointedly, the median net worth from 2009 to 2011 dropped from $889,275 to $836,033. This suggests that the true growth in the economy has been exclusively concentrated on the upper percentiles, based on wealth. This is a continuation of the income gap in this country, in which the wealthiest 20 percent of the population saw a $2,550 increase to their income per annum over a 30-year period, while the least-wealthy 20 percent actually saw their real wages (wages adjusted for inflation) decline over the same 30 year period, for an increase (in pre-inflation dollars) of just $1,330 for the entire period.
Racial wealth gaps are growing, too
While these numbers are disheartening, it should be taken into consideration that for many in U.S. society, the situation is far worse.
According to the U.S. Census Bureau, the mean household wealth for an African-American family in 2010 was $4,955. This is compared with $7,424 for Hispanics, $69,590 for Asians and $110,729 for Whites. This represents the highest disparity in wealth between any two populations in America; it is more than twice the size of the wealth gap between Black and White Americans during the Great Depression.
From 2005 to 2010, the median household wealth for Asians, Hispanics and Blacks saw a roughly 60 percent drop, while the wealth of White households at the same time only dropped 23 percent. For many African-American families, home ownership constituted the bulk of their wealth. The sub-prime mortgage crisis devastated many African-American families, as many banks intentionally sought to offer inferior high-cost housing loans to minority customers.
In addition, the Black community has an unemployment rate more than 6 percentage points higher than that of the White community, while Hispanics have a rate that is 4 percentage points higher. This lack of financial muscle can have long-term consequences. Parents have greater difficulties providing educational opportunities to their children, relegating them to a future of minimum wage jobs. This in turn could relegate future generations to an ever-expanding wealth gap.
“The implications will be with us into the next generation, which will have greater difficulty in getting the kinds of jobs needed to start saving and building wealth,” Roderick Harrison, a senior research scientist at Howard University, said.
As argued by Lawrence Bobo for The Root,
“Black communities and leadership are deeply preoccupied, even today, with trying to find a path out of unacceptably high rates of poverty and unemployment, as well as unacceptably high rates of school dropouts and poor achievement. The civil rights and black activist communities must, tragically, also remain mobilized to defend an effective right to vote in many places, including before an apparently skeptical U.S. Supreme Court. And, of course, the scourges of racial profiling, arbitrary stop-and-frisk policies, mass incarceration and an utterly failed drug war could be added to this list of major detours and bad stretches still remaining on the path to full black citizenship.”