J: For over seventy years now the Board of Governors of the Federal Reserve System (“the Board”) has been providing us with quarterly updates on the balance sheets and income statements of various key sectors of the US economy. For most of that time these data were called “The Flow of Funds Accounts,” but now they are known as the “Financial Accounts of the United States.” Since the report is enumerated as the “Z.1 release,” it can also be called that.
L: Just a little economic jargon ‘splaining for you. You’re welcome.
J: On June 8, we got spectacularly good news on the net worth of households and nonprofit corporations, which is the way the Board reports these data. As the chart shows, household net worth hit a whopping record of $94.8 trillion on March 31, 2017.
This was more than double the $46.5 trillion posted on September 30, 2003. It was more than triple the $31.3 trillion of March 31, 1997. Both of those were records when they occurred.
L: So I’m wondering if this is all the same value of dollars or does inflation factor in this, too?
J: Yes, indeed. The chart shows current dollars, meaning that no adjustments were made to account for inflation.
J: You can clearly see the massive destruction of wealth during the last recession, an unprecedented drop of $12.9 trillion from $67.7 trillion on June 30, 2007 to $54.8 trillion on March 31, 2009. The phenomenal $40.0 trillion rise from that nadir is more than the total net worth of the sector for any time before the fourth quarter of 1999!
If you want to study the details yourself, they are on page 138 (Table B.101) of the report.
L: Let me know if you do this. I always tease Jim that NO ONE does this kind of thing except him. :-)
J: The biggest share of our $110.0 trillion of assets was the $23.5 trillion value of our homes. That was also a record. This is the only category of assets in the sector where the Board separates the holdings of households from those of nonprofit organizations.
The second-largest category of assets was $22.7 trillion in pension entitlements. This includes both 401(k) and IRA assets, but excludes Social Security.
The third-largest asset is corporate equities at $16.4 trillion. Equity in noncorporate business was $11.3 trillion and ownership of mutual fund shares was $7.4 trillion.
By far the largest category of the $15.2 trillion of liabilities was home mortgages at $9.8 trillion. Consumer credit at $3.8 trillion was a distant second.
Net worth was 661.6 percent of the $14.3 trillion of disposable personal income on a seasonally adjusted annual rate basis. That was also a record high.
Another notable feature of this report is that homeowners’ equity of $13.7 trillion finally surpassed the old record of $13.4 trillion set on March 31, 2006. The ratio of homeowners' equity to the value of residential real estate was 58.3 percent. That was the highest since the 58.5 percent of March 31, 2004.
If there were a way to levy and collect a 20.0 percent wealth tax on net worth without lowering the value of these assets, we could pay off the national debt and start over. Impossible but wonderful to think about, right?
L: OK, this kind of headline makes me crazy. Aggregated data are all well and good, and every single thing Jim has reported is accurate, but to me it highlights the story of income inequality and does not lead to the conclusion that “we’re really rich.” For me it says something like, “there’s a lot of money out there and some people are rich, people who own homes are probably better off than those who do not, but how is it fair that so many people are not happily participating in these ‘riches’?” (It doesn’t help that I’m currently reading an old Smithsonian article about the working poor or just listened to an NPR report about people struggling to find work in rural Maine.)
Here’s what I’ve learned from Jonathan Haidt about this. He proposes that there is a moral foundation that he has named, “Liberty/oppression.” From pp. 203-204 of his book, Righteous Mind:
The hatred of oppression is found on both sides of the political spectrum. The difference seems to be that for liberals—who are more universalistic and who rely more heavily upon the Care/harm foundation—the Liberty/oppression foundation is employed in the service of underdogs, victims, and powerless groups everywhere. It leads liberals (but not others) to sacralize equality, which is then pursued by fighting for civil rights and human rights. Liberals sometimes go beyond equality of rights to pursue equality of outcomes, which cannot be obtained in a capitalist system. This may be why the left usually favors higher taxes on the rich, high levels of services provided to the poor, and sometimes a guaranteed minimum income for everyone.
Conservatives, in contrast, are more parochial—concerned about their groups, rather than all of humanity. For them, the Liberty/oppression foundation and the hatred of tyranny supports many of the tenets of economic conservativism: don’t tread on me (with your liberal nanny state and its high taxes), don’t tread on my business (with your oppressive regulations), and don’t tread on my nation (with your United Nations and your sovereignty-reducing international treaties).
That at least explains WHY Jim and I disagree on a lot of things. So in a political situation, it seems pretty clear that no one is going to change any one’s very foundations, but the objective, I think, is to stay in the room together and figure out how to “sort of agree” on a path that could be (barely) OK for each party. I can’t believe I’m saying this, but I think I miss the cigar-smoke-filled back rooms where the good old boys made their deals (I’m pretty sure “compromise” is too nice a word for their transactions).