Tuesday, August 02, 2011

On the wealth gap

Pew recently published a report accompanied by a press release that highlights the recent growth in the ratio of the median wealth of white households relative to that of black and Hispanic households. As of 2009, the median white household's net worth was 20 times that of blacks. Just four years prior, the multiple had 'only' been 11.

The median net worth of white households fell over $22k from $135k in '05 to $113k '09, while black net worth decreased $6, from $12k to $6k. White wealth decreased more than NAM wealth in absolute terms.

As nearly one-quarter of NAM households have no assets beyond a vehicle (about 1 in 17 white households are in the same situation), it's a bit misleading to focus on relative multiples, since the floor is not zero, but some undefined negative number far below that. If a double dip recession propels us into "peak everything", imagine the consequences are another $20k off of median white household net worth and another $5k off black net worth. Now we're looking at a multiple of nearly 100 between white and black wealth. Is it plausible that the relative increased suffering of blacks will be an order of magnitude worse than the pain this causes whites? If black net worth falls to $100 and white net worth to $50k, is the black situation 500 times worse? Doubtful (though it is admittedly difficult to quantify economic suffering). And what if median black wealth falls $7k, into negative territory, where a large number of blacks already are? The multiplier becomes a negative number, which just gets really confusing in the popular press.

Anyway, the underlying data that comparative reports like these are built upon is often useful for calibrating one's hazy conception of the American scene (in this case, by affluence and race) into something sharper. Unfortunately, even though the report understandably focuses on median rather than mean wealth, breaking out actual average dollar figures by asset class for all households is more tenable for mean wealth than it is for median wealth based on the figures provided. Consequently, that's what the following table displays, derived primarily from the data on page 6 of the full report (all figures are in US dollars, rounded to the nearest $100):

Asset class
Whites
Hispanics
Blacks
Asians
Total assets
271,000
73,000
73,800
313,000
Own home
103,000
40,200
41,300
109,600
Rental property
16,300
6,600
4,400
15,700
Other real estate
10,800
1,500
2,200
3,100
Stocks and mutual funds
43,400
2,200
3,700
100,200
IRA and Keogh accounts
27,100
4,400
4,400
18,800
401(k) and thrift accounts
32,500
8,000
10,300
31,300
Financial institution accounts
16,300
4,400
4,400
18,800
Other interest-earning assets
5,400
700
700
3,100
Business equity
19,000
10,200
6,600
15,700
Vehicles
8,100
3,700
3,000
6,300
Other assets
8,100
1,500
700
3,100
Unsecured liabilities
(13,500)
(9,500)
(8,900)
(12,500)

The gap between whites and NAMs is by far the widest in categories involving financial assets. While the average white family's sedan is only twice as nice as the average Hispanic's family van, the white family's Scottrade account is 20 times as valuable. Seeing people on the street gives the general impression that whites tend to be a little better off than NAMs, but it's certainly nothing like a British tourist traveling to a village in the Congo. Seeing each of these people's personal ledgers reveals that behind relatively equal public appearances, whites have a lot more tucked away than NAMs do (and Asians--whose cars are less flashy than those of whites--have even more than that tucked away). If whites and Asians tried to be as opulent relative to their real wealth as blacks (and to a lesser extent, Hispanics) do, racial tensions and the clamor for robin hood economics would be even worse than they already are.

A couple of other interesting asides: 1) The report mentions that the Asian figure for stocks and bonds is noticeably higher than it was four years ago, even though the DJIA lost around 40% of its value over that period of time, and suggests caution in putting too much stake in an Asian sample that may have had an unexpectedly high number of very affluent participants. The total mean wealth of Asian households holds over the four year period. As the recession hit states with large immigrant populations the hardest, it would be expected for mean Asian wealth to drop quite a bit, like Hispanic mean wealth did. So the caution is valid.

2) While the median Hispanic household's net worth is higher than the median black net worth, mean black net worth is higher than mean Hispanic net worth. Among the lower classes, blacks struggle a little more than Hispanics do. But there are a lot more blacks than there are Hispanics who make it big in things like sports and the world of entertainment.


6 comments:

Anonymous said...

The gap between whites and NAMs is by far the widest in categories involving financial assets. While the average white family's sedan is only twice as nice as the average Hispanic's family van, the white family's Scottrade account is 20 times as valuable.

I don't think the average figures are very useful, especially with respect to stocks. Most stocks are owned by a competitively small group of people. The typical white person does not have anything like the "average" degree of wealth.

Steve Sailer said...

The overall measurements are of the 50th percentile of household wealth for each group, and then the subcategory measurements are for the 50th percentile for households that have that kind of asset.

One question would be whether is the bulk of the population: are most people in 3 to 5 person households with lots of assets, or are we as totally doomed as this table suggests?

Audacious Epigone said...

Steve,

Right, which is why I went with the mean wealth table, as it at least incorporates all members of each race, though of course high-end earners have a lot more pull than they do in the rest of the report (which is median-based).

The_King said...

Does the stock and other financial vehicle assets include foreign holdings? I would expect many Asians to have moved their assets to more profitable markets in Asia such as Hong Kong and Shanghai Stock Exchanges.

The main issue with NAMs is they lack financial education and have dismal spending habits for their discretionary income. Cars shouldn't even be considered an asset.

Audacious Epigone said...

The King,

Yes, stocks and mutual funds include foreign holdings. Agree re: vehicles being claimed as assets--the NAM % of people with no net worth is essentially around 25.

Absolute Wealth said...

Inequality of wealth, by itself, isn’t new. In the past few decades, there’s evidence that the gap in some countries is widening – including the U.S. But super-rich folks like Forbes 400 billionaires and greedy corporate executives are hardly a recent phenomenon.