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The 100 trillion dollar question


WE live in an age obsessed with economic inequality. There is too much of it, most people seem to agree. After Donald Trump - his personality, behaviour and policies - inequality may well become the dominant issue in the 2020 election. This poses dangers, the most obvious being the tendency to blame the rich and the super-rich for everything that ails us or displeases us. Still, we can't (and shouldn't) duck the issue.

Americans have long tolerated some inequality, because almost everyone would like to strike it rich. If you harbour these ambitions, you've got to accept the consequences. But today's gaps between rich and poor, or between the super-rich and upper middle class, long ago exceeded these permissive limits. The present inequality must make all but the most avid enthusiasts of laissez-faire (let it be) squirm.

Anyone who doubts this should consult a recent study by the Federal Reserve. Until now, most studies of inequality have focused on income - what people earn or receive in a year. By contrast, the Fed study concentrates on the less common subject of wealth - what people own, from cars to homes to stocks.

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The study's most striking feature is how gigantic the numbers are. In 2018, the Fed estimates that Americans owned US$114 trillion of assets, including US$26 trillion of housing and real estate, US$26 trillion of pensions (such as 401k accounts), US$22 trillion of corporate stocks and mutual funds, and US$6 trillion of durable goods (vehicles, appliances, furniture). Liabilities - mostly mortgages and consumer credit - totalled about US$15 trillion, leaving net worth at nearly US$100 trillion.


Some of these numbers have been available before. What's new is the distribution of this wealth, which is highly skewed and getting more so:

  • In 2018, the net worth of the wealthiest 10 per cent of Americans represented 70 per cent of household wealth, up from 61 per cent in 1989, the study's first year. Even among this upper crust, wealth became more concentrated. Over the same years, the share of the top one per cent went from 24 per cent to 31 per cent.
  • The bottom 50 per cent of US households had virtually no net worth, the difference between assets and liabilities, mainly loans. Their wealth share tumbled from 4 per cent of total wealth in 1989 to one per cent in 2018. Their assets (roughly half were homes) stood at US$6.8 trillion compared with liabilities (primarily home mortgages) of US$5.6 trillion, leaving a net worth of US$1.2 trillion. Many of these households borrowed heavily in the real estate boom. Recall: Total household net worth equals about US$100 trillion.
  • The big losers over the past 30 years could be termed the broad middle-class: those with wealth starting at the median (the midpoint of all wealth) and going to the 90th percentile. Their share of household wealth, though still sizeable, has dropped from 35 per cent in 1989 to 29 per cent in 2018.

Some caveats are in order. Perhaps the most important is this: Economic inequality at the bottom of the wealth distribution does not always indicate poverty. Low wealth sometimes reflects age. Young households on average have lower incomes and wealth; but as they age, these increase. The opposite is often true of older households. Even though they saved for retirement, they're depleting their wealth.

The paucity of past studies on wealth has mainly reflected technical difficulties. Information needed to be collected from many sources and merged into a common statistical framework. There was often a long lag between data collection and publication. Fed economists overcame these problems by merging two existing data sources: the Survey of Consumer Finances and the Financial Accounts of the United States.

The new wealth statistics, which will be available on a quarterly basis, will give economists a new set of tools to judge the effects of wealth on spending and saving behaviour. The biggest impact could be political, because the new data will enable economists, scholars, pundits and interest groups to produce studies showing how various groups - by age, race, ethnicity and family status - are faring.


The truth is that we still don't fully understand the surge in the economic inequality of the last three decades. The populist temptation is to blame greed, but this is not a satisfactory explanation because greed is hardly new. It seems virtually certain that, sooner or later, taxes on the well-to-do and wealthy will go up. That's where the money is, and that's where the biggest private gains have been.

But can we do this in a way that doesn't weaken incentives for risk-taking and investment? Can we do it in a way that strikes most people as reasonable and not simply an exercise in political and economic revenge? Good questions, all. THE WASHINGTON POST WRITERS GROUP