Last month, Sen. Bernie Sanders, I-Vt., tweeted about a new report he requested from the Congressional Budget Office. The report includes a chart showing the shockingly low amount of wealth the poor half of American households have compared to the rest.
The obscene level of income and wealth inequality in America is a deeply moral problem that we cannot ignore or sweep under the rug. When there are few in many, so few, society cannot sustain itself. https://t.co/9kkKyJV264
— Bernie Sanders (@SenSanders) September 28, 2022
Indeed, the wealth of the bottom 50 percent was so low that it barely shows up on the chart. What’s more, it’s been modest since 1989—even the net worth of the top 10 percent of Americans has more than tripled.
But the CBO report only provides those numbers through 2019. What has happened since then, during the pandemic years? After the high inflation of the last few years, today’s situation should be even worse. Hear what the Washington Post had to say after the Federal Reserve’s most recent interest rate hike in September:
Fed Chairman Jerome H. Powell said the hikes could be bigger — and they would slow growth and weaken the labor market. Unfortunately, there is no better option.
Inflation must be stopped. Mr. Powell noted that Americans are already being hurt by rising prices, and those with lower incomes are the hardest hit.
So let’s look at the Fed’s chart, which shows the net worth of only the bottom 50 percent of households and runs from 1989 to the second quarter of 2022:
Surprisingly, measured by this metric, the last few years haven’t been a total economic disaster for the bottom 50 percent of US households. Indeed, they were the best times of the last 30 years. This is not to say that America’s poor people are living in clover – they are not. But in this way, it’s a clear improvement over the past: Since the first quarter of 2020, the net worth of the poorest 50 percent has doubled, and it’s now much higher than in US history.
The story told in the graph is simple and, until recently, very painful. The US economy is twice as large as it was in 1989, so you’d expect the net worth of the bottom 50 percent to gradually increase over that period until it, too, doubles.
It didn’t happen. When it started in 1989, the combined net worth of the poorest 50 percent was $1.7 trillion in current dollars. It slowly rose during the Bill Clinton administration to $2.3 trillion in today’s money.
But for most of George W. Bush’s presidency, it went nowhere.
Then, during the Great Recession caused by the bursting of the housing bubble, the net worth of the poorest 50 percent plummeted along with home prices. It then slowly rose until the first quarter of 2020. Since then, it has skyrocketed and is now over $4 trillion. (The Fed measures this differently than the CBO, but the general direction is the same in both data sets.)
The improvement in Americans’ financial health is reflected in other data as well. In 2013, only 50 percent of Americans reported that they could afford $400 to cover an emergency, such as fixing a broken-down car. Now 68 percent (although this figure is not adjusted for inflation, $400 today is not the same as it was in 2013).
So why and how did this happen? And what does that mean?
First, wages have not fallen in real terms with inflation. That is, while prices have risen, wages have mostly kept pace. Real median wages actually rose sharply at the start of the pandemic; since then it has fallen sharply and is now almost the same as in the first quarter of 2020. (The increase was not nearly as significant as it appeared—this was partly due to a significant increase in the number of low-wage workers losing their jobs at the start of the pandemic. So, as unemployment fell, the decline in average wages was not as significant.)
Half of the increase in wealth can be attributed to rising housing costs – thanks to both rising home prices and inflation driving down the cost of fixed-rate mortgages. The federal government also announced the CARES Act for 2020, expanded unemployment benefits and the Child Tax Credit for 2021, among others. provided great financial support to the bottom 50 percent through Along with low unemployment and increased worker leverage, this is a large part of the explanation.
And so we have a story of two competing events.
According to the Washington Post and many other media outlets, “low-income people have been hit hardest by recent inflation” and we should slow down the economy (and lower wages and raise unemployment) for their benefit.
According to the actual numbers, it’s a good time for many Americans in the poor 50 percent. That’s not to say that millions aren’t struggling, but the financial prospects for many are worse than ever in a world of low inflation, a situation that hasn’t sparked the fervent concern of the corporate media. We must now focus on moving forward, not pushing the workforce into submission.
What happens next — and whether the modest increase in financial security that has accumulated to 50 percent over the past two years will hold up — depends largely on which story we believe. The people at the helm of US politics today choose policies that are not based on hard numbers.
Update: October 21, 2022 at 5:00 PM ET
This story has been updated to include home equity as one factor in increasing the wealth of the bottom 50 percent.