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Mark's Market Blog

Part VII: The Distribution of Wealth

By Mark Lawrence

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In Money Part I, we saw that money is mostly electronic and it's created out of thin air by banks. In Money Part II we saw that charging interest on loans requires that the entire economy grow: there must be more and more people borrowing more and more money to consume more and more stuff, or the entire system collapses. In Money Part III we saw that the value people place on money depends on the amount they already have, and that this valuation drives important parts of our country's investments and lotteries. Money Part IV was about the trade deficit and the recent Internet, stock market, and housing bubbles. Money Part V was about income distribution and redistribution in the US. Money Part VI was about home ownership in the US. Today we'll talk about the distribution of wealth in the US, that is who actually owns all the stuff in this country.

Wealth is everything you own minus your debts. If you own a $1M house with a $900,000 mortgage, that house contributes $100,000 to your net worth. Wealth includes money in bank accounts, stocks, bonds, houses and real estate, the value at sale of your small business, and any patents and copyrights you might own.

The wealth of the world is, roughly speaking, divided up into thirds. Asia, the US and Canada, and Europe each have about a third of the world's net worth. The entire rest of the world accounts for less than 15%. Asia is about half of the world's population, while the US and Canada are about 5% and Europe is about 10%. This is why everyone is mad at white males: we're 12% of the world's population, and we own more than half of everything. In the interests of fairness, I'd like to point out that we also created more than half of everything.

In terms of types of financial wealth, the top one percent of households own about a third of all privately held stock, two-thirds of financial securities like bonds, and two-thirds of business equity. The top 20% own about 90% of stock, bonds, trust funds, and business equity, and over 75% of non-home real estate. Since financial wealth is what counts as far as the control of income-producing assets, we can say that just 20% of the people own the United States of America. The charts below show how the US pie is divided up: the red slice goes to the bottom 80% of US citizens.

90% of everyone in the US, about 275M out of our 305M citizens don't own much of anything. Is there anything where the bottom 90% own a proportional fraction? Yes, as the right hand chart below shows, the bottom 90% of the population owns by far the majority of the debt.

It's common these days to hear about the disappearance of the middle class and how the top 1% is taking everything. In fact, the chart below shows that these fractions have not changed much in the last 90 years.

If look at income, we find that the top one percent of the population gets about 20%. If we look at net worth, we find that the top one percent own almost 40% the assets in the US, double their share of income. There's an important fact here: the top 1% of our citizens have wealth far in excess of their proportion of income.

Wealth builds upon itself; you must start by saving, by consuming less than you earn, and then at some point your capital gains exceed your income. This is when you have joined the wealthy. The charts below show that only the top few percent of everyone has capital gains equal or greater than their income: the bottom 98% accumulate wealth only as fast as they can work and save; the top 2% accumulate wealth as a side effect of being wealthy.

Here's the raw data analyzed for much of this blog (you can skip the rest of this blog):

Total Net Worth
Year Top 1% Next 19% Bottom 80%
1983 33.80% 47.50% 18.70%
1989 37.40% 46.20% 16.50%
1992 37.20% 46.60% 16.20%
1995 38.50% 45.40% 16.10%
1998 38.10% 45.30% 16.60%
2001 33.40% 51.00% 15.60%
2004 34.30% 50.30% 15.30%

Total Financial Wealth
Year Top 1% Next 19% Bottom 80%
1983 42.90% 48.40% 8.70%
1989 46.90% 46.50% 6.60%
1992 45.60% 46.70% 7.70%
1995 47.20% 45.90% 7.00%
1998 47.30% 43.60% 9.10%
2001 39.70% 51.50% 8.70%
2004 42.20% 50.30% 7.50%

Total Income
Year Top 1% Next 19% Bottom 80%
1982 12.80% 39.10% 48.10%
1988 16.60% 38.90% 44.50%
1991 15.70% 40.70% 43.70%
1994 14.40% 40.80% 44.90%
1997 16.60% 39.60% 43.80%
2000 20.00% 38.70% 41.40%

Investment Assets
Year Top 1% Next 19% Bottom 80%
Business equity 61.9% 28.4% 9.7%
Financial securities 63.8% 24.1% 12.1%
Trusts 47.7% 33.9% 18.5%
Stocks and mutual funds 36.7% 42.0% 21.2%
Non-home real estate 36.8% 42.6% 20.6%
TOTAL 50.3% 35.3% 14.4%

Housing, Liquid Assets, Pension Assets, and Debt
Year Top 1% Next 19% Bottom 80%
Deposits 20.8% 40.1% 39.1%
Pension accounts 13.5% 44.8% 41.7%
Life insurance 21.4% 36.0% 42.7%
Principal residence 9.8% 28.2% 62.0%
Debt 7.2% 19.9% 73.0%
TOTAL 12.2% 33.5% 54.3%

Year Top 1% Next 4% Next 5% Next 10% Bottom 80%
1979 0.378 0.201 0.088 0.102 0.231
1981 0.358 0.196 0.092 0.11 0.244
1983 0.376 0.176 0.085 0.112 0.251
1985 0.397 0.172 0.08 0.102 0.249
1987 0.367 0.186 0.087 0.104 0.256
1989 0.391 0.183 0.086 0.105 0.235
1991 0.383 0.179 0.085 0.114 0.239
1993 0.422 0.183 0.087 0.101 0.207
1995 0.432 0.183 0.086 0.103 0.196
1997 0.457 0.184 0.085 0.099 0.175
1999 0.478 0.179 0.081 0.092 0.17
2001 0.518 0.16 0.07 0.092 0.16
2003 0.575 0.157 0.062 0.08 0.126

Data from: UC Santa Cruz and the Minneapolis Fed.

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