Occupy Wall Street: Responses to Commenters
Many thanks to all of you who commented last week on the Occupy Wall Street issue. You made strong points, and I promised a couple of you that I would respond in some form or another to your arguments or questions. As you might imagine, almost every idea could generate books or at least entire essays. I did a bit of quick research among government publications and databases, so we can at least get a start. Here are three topics.
Could Jesus Be with the Wealthy Too?
First – and foremost – one of you wrote that asking for Jesus to be among the Occupiers was a good thing, that Jesus surely belonged with them and "not with the smug wealthy". We want to offer a different take on that. We want Jesus to hang out with the wealthy, if they are thoughtful people, but especially if they are smug. They obviously need Him. One of our hopes for Ways of the World is to help raise the consciousness of our readers to realize that Jesus is in fact right there next to them as they conduct their daily business and to help raise the consciousness of those in the Church about ministering in the business world. Yes, Jesus belongs with the poor, but He's got big arms – He can enfold them around everyone; it doesn't have to be an either-one-or-the-other situation.
To the more mundane matters, several of you expressed distress and disgust over the widening breach between rich and poor, and our other two responses today address this concern. One of you offered some source material that seems to show that a very large part of wealth increases in this country goes to the people who are already among the very highest ranking. Others, you indicate, are not just lagging, but have experienced reversals in recent decades.
The Gaping Wealth Gap – and Debt
We consulted the Federal Reserve's "Survey of Consumer Finances", an extensive and detailed study conducted every three years for the Fed by NORC, the National Opinion Research Center at the University of Chicago. Using tables from the Fed that cover the surveys from 1989 through 2007, we were in fact able to approximate Commenter CJGolfs' assertion that in recent years 80% to as much as 90% of the gains in net worth have gone to the top households.
When we talk about wealth, we usually think of assets, and it's the concentration of assets that is seen to give the upper brackets the "power" we associate with wealth. But wealth and power are also subject to society's debt position. Another of our Commenters last week called our attention to some recent work by Edward Wolff, a professor at NYU and specialist in consumer wealth analysis, who highlights this aspect in a 2010 report based on the Fed's Survey. Its subtitle is "Rising Debt and the Middle-Class Squeeze". As we also found from a cursory analysis of the data, the financial position of the middle classes of the wealth distribution has been squeezed by relatively less growth in assets than for those at the top, and it has also been squeezed by considerably greater debt from 1989 to 2007. For the middle 50%, debt in 1989 was 63% of their net worth; in 2001 it had risen to 68%, but in 2007, it equaled 91% of net worth. Wolff's numbers are not so dramatic, but they give the same impression.
Wolff argues that people took on this added debt in order to maintain their consumption, because their incomes were restrained, not to go on some lavish spending binge. As we noted at the beginning, each of these issues can generate quite lengthy responses and we don't want to go into detail right here and right now. Suffice for the present that nominal incomes climbed throughout this period, but in recent years, purchasing power has been harmed by rising food and gasoline prices. For middle America, this is a real burden on daily expenses. We also borrowed to buy big houses and we're heavily weighted down by student loans. We'll come back to this, as we note below.
Impact of the Great Recession
All this said, these data end in 2007, just before the Great Recession. The Fed did a partial update of its survey in 2009, and a much different picture is evolving. The values of household net worth appear to have dropped on the order of 20%, according to the summary information in one Fed report, and 62.5% of households experienced a decline, notably and most especially those at the top. The next regular survey covers 2010, and it should be published early in 2012. So we will obviously revisit this whole issue then for a more complete view.
What If We Look at the Same People Through Time
In our third response, we want to highlight the dynamism and the rapid change that always characterizes our economy. One aspect of people's complaints over equality and inequality which concerns us is that much of the information represents independent snapshots at different points in time. Only a few surveys follow the same people through time, so we can see what happens to specific individuals.
One program that does do this is the Census Bureau's Survey of Income and Program Participation, or SIPP. It is taken to collect information about the evolution of people's incomes, where they come from and how they develop over time; it forms the basis for assessing the effectiveness of welfare programs and other means-tested benefits. The survey follows groups of the same people in cycles of roughly four years.
So it can tell you, for instance, that for people in the bottom one-fifth of the income distribution in 2004, 30% had moved up to a higher one-fifth bracket by 2007, that is, in just three years, and 11.6% of them moved up two brackets or more. At the other end, of the people in the top 20% in 2004, 32% had moved down by 2007, 10.7% of them by two or more brackets. In the middle, just 44.4% remained in the middle one-fifth bracket after three years, with almost equal shares moving up or down. This, of course, was when the economy in general was moving along pretty well. These comparisons won't matter as much probably for the recessionary period. But the point this does make is that significant numbers of people move up and down in the pecking order all the time. So it's not as if a specific cell or cadre of folk have a permanent monopoly on the top spots and keep pushing the other folks down. The U.S. economy doesn't work like that; as we see it's much more fluid, even in very short periods of time.
We still owe you all some discussion on corporations and the role of profits and banking regulation; we could probably talk about taxes and tax shares once a month every month for several years and not get that sufficiently covered. And we still want to get back to job creation. That's a really fluid topic too, as something called JOLTS data can tell us. Stay tuned.
====================================
Sources consulted:
Federal Reserve Board. "2007 Survey of Consumer Finances": http://www.federalreserve.gov/econresdata/scf/scf_2007.htm
and the 2009 update:
http://www.federalreserve.gov/econresdata/scf/scf_2009p.htm.
Edward N. Wolff. "Recent Trends in Household Wealth in the United States: Rising Debt and the Middle-Class Squeeze – an Update to 2007." Annandale-on-Hudson, NY: Levy Economics Institute of Bard College. Working Paper No. 589, March 2010. Available here: http://www.levyinstitute.org/pubs/wp_589.pdf .
U.S. Census Bureau. "Survey of Income and Program Participation": http://www.census.gov/sipp/index.html
Could Jesus Be with the Wealthy Too?
First – and foremost – one of you wrote that asking for Jesus to be among the Occupiers was a good thing, that Jesus surely belonged with them and "not with the smug wealthy". We want to offer a different take on that. We want Jesus to hang out with the wealthy, if they are thoughtful people, but especially if they are smug. They obviously need Him. One of our hopes for Ways of the World is to help raise the consciousness of our readers to realize that Jesus is in fact right there next to them as they conduct their daily business and to help raise the consciousness of those in the Church about ministering in the business world. Yes, Jesus belongs with the poor, but He's got big arms – He can enfold them around everyone; it doesn't have to be an either-one-or-the-other situation.
To the more mundane matters, several of you expressed distress and disgust over the widening breach between rich and poor, and our other two responses today address this concern. One of you offered some source material that seems to show that a very large part of wealth increases in this country goes to the people who are already among the very highest ranking. Others, you indicate, are not just lagging, but have experienced reversals in recent decades.
The Gaping Wealth Gap – and Debt
We consulted the Federal Reserve's "Survey of Consumer Finances", an extensive and detailed study conducted every three years for the Fed by NORC, the National Opinion Research Center at the University of Chicago. Using tables from the Fed that cover the surveys from 1989 through 2007, we were in fact able to approximate Commenter CJGolfs' assertion that in recent years 80% to as much as 90% of the gains in net worth have gone to the top households.
When we talk about wealth, we usually think of assets, and it's the concentration of assets that is seen to give the upper brackets the "power" we associate with wealth. But wealth and power are also subject to society's debt position. Another of our Commenters last week called our attention to some recent work by Edward Wolff, a professor at NYU and specialist in consumer wealth analysis, who highlights this aspect in a 2010 report based on the Fed's Survey. Its subtitle is "Rising Debt and the Middle-Class Squeeze". As we also found from a cursory analysis of the data, the financial position of the middle classes of the wealth distribution has been squeezed by relatively less growth in assets than for those at the top, and it has also been squeezed by considerably greater debt from 1989 to 2007. For the middle 50%, debt in 1989 was 63% of their net worth; in 2001 it had risen to 68%, but in 2007, it equaled 91% of net worth. Wolff's numbers are not so dramatic, but they give the same impression.
Wolff argues that people took on this added debt in order to maintain their consumption, because their incomes were restrained, not to go on some lavish spending binge. As we noted at the beginning, each of these issues can generate quite lengthy responses and we don't want to go into detail right here and right now. Suffice for the present that nominal incomes climbed throughout this period, but in recent years, purchasing power has been harmed by rising food and gasoline prices. For middle America, this is a real burden on daily expenses. We also borrowed to buy big houses and we're heavily weighted down by student loans. We'll come back to this, as we note below.
Impact of the Great Recession
All this said, these data end in 2007, just before the Great Recession. The Fed did a partial update of its survey in 2009, and a much different picture is evolving. The values of household net worth appear to have dropped on the order of 20%, according to the summary information in one Fed report, and 62.5% of households experienced a decline, notably and most especially those at the top. The next regular survey covers 2010, and it should be published early in 2012. So we will obviously revisit this whole issue then for a more complete view.
What If We Look at the Same People Through Time
In our third response, we want to highlight the dynamism and the rapid change that always characterizes our economy. One aspect of people's complaints over equality and inequality which concerns us is that much of the information represents independent snapshots at different points in time. Only a few surveys follow the same people through time, so we can see what happens to specific individuals.
One program that does do this is the Census Bureau's Survey of Income and Program Participation, or SIPP. It is taken to collect information about the evolution of people's incomes, where they come from and how they develop over time; it forms the basis for assessing the effectiveness of welfare programs and other means-tested benefits. The survey follows groups of the same people in cycles of roughly four years.
So it can tell you, for instance, that for people in the bottom one-fifth of the income distribution in 2004, 30% had moved up to a higher one-fifth bracket by 2007, that is, in just three years, and 11.6% of them moved up two brackets or more. At the other end, of the people in the top 20% in 2004, 32% had moved down by 2007, 10.7% of them by two or more brackets. In the middle, just 44.4% remained in the middle one-fifth bracket after three years, with almost equal shares moving up or down. This, of course, was when the economy in general was moving along pretty well. These comparisons won't matter as much probably for the recessionary period. But the point this does make is that significant numbers of people move up and down in the pecking order all the time. So it's not as if a specific cell or cadre of folk have a permanent monopoly on the top spots and keep pushing the other folks down. The U.S. economy doesn't work like that; as we see it's much more fluid, even in very short periods of time.
We still owe you all some discussion on corporations and the role of profits and banking regulation; we could probably talk about taxes and tax shares once a month every month for several years and not get that sufficiently covered. And we still want to get back to job creation. That's a really fluid topic too, as something called JOLTS data can tell us. Stay tuned.
====================================
Sources consulted:
Federal Reserve Board. "2007 Survey of Consumer Finances": http://www.federalreserve.gov/econresdata/scf/scf_2007.htm
and the 2009 update:
http://www.federalreserve.gov/econresdata/scf/scf_2009p.htm.
Edward N. Wolff. "Recent Trends in Household Wealth in the United States: Rising Debt and the Middle-Class Squeeze – an Update to 2007." Annandale-on-Hudson, NY: Levy Economics Institute of Bard College. Working Paper No. 589, March 2010. Available here: http://www.levyinstitute.org/pubs/wp_589.pdf .
U.S. Census Bureau. "Survey of Income and Program Participation": http://www.census.gov/sipp/index.html
Labels: American Society, Economy
posted by Carol S. | 10/10/2011 04:17:00 PM
1 Comments:
"Hear! Hear!", Carol, on pointing out the pivotal role of income inequality in achieving greater wealth equality. Sometimes I feel like the only one pointing out that what the Democrats call a "millionaire's tax" is actually a "wealth mobility tax".
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