Counterparties: A recovery for the 7%

By Ben Walsh
April 24, 2013

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Here’s the post-crisis recovery in a nutshell: from 2009 to 2011, the “mean net worth of households in the upper 7% of the wealth distribution rose by an estimated 28%, while the mean net worth of households in the lower 93% dropped by 4%”, according to new report by the Pew Research Center.  The reason for this, Pew says, is clear. Capital markets, where the wealthy hold a disproportionate amount of assets, boomed, while the housing market, the biggest source of wealth for most Americans, was flat.

Josh Brown looks at the Pew study and concludes that “wealthy American households have never had it quite so good”. He sees a statistical portrait of American rentiers, a class with “investment portfolios who essentially extract an income from the nation and return very little (in the form of jobs or spending) in comparison to what they take”. At the other end of the spectrum, America’s dealing with the quiet humanitarian disaster of long-term unemployment, which Paul Krugman says is creating an increasingly “permanent class of jobless Americans.”

The WSJ’s Neil Shah tries to find a slight silver lining in other data from the Federal Reserve, which show that “Americans have recouped much of the wealth they lost during the recession”. Household wealth at the end of 2012 was $66.1 trillion, just a little more than a trillion short of its 2007 pre-recession peak.

Unfortunately, housing may not return to its former role in the US economy. Amir Sufi, an economist at the University of Chicago, writes in a new paper that the “days when housing was the predominant force driving economic activity are gone”. Housing’s vaunted wealth effect, Sufi finds, was most evident among poorer homeowners. They’ve now been largely shut out of the the housing market, and aren’t likely to be coming back anytime soon. — Ben Walsh

On to today’s links:

EU Mess
Jose Manuel Barroso’s anti-austerity comments anger Germans, encourage everyone else – Der Spiegel

TBTF
Brown and Vitter unveil the first draft of their bill to reform Dodd-Frank – Tim Fernholz

Not-So Small Government
The US government’s investment in electric cars is not going well – NYT

Hot Money
The world’s largest commodities firm did hundreds of millions of dollars of business with Iran last year – Guardian

Charts
The vanishing Wall Street trader – Bloomberg
Human traders are winning, reports increasingly scarce human trader – Bloomberg

Wonks
Paul Krugman rules the land of economic punditry as “KrugTron the Invincible” - Noah Smith
A high risk, high return solution to the EU mess – Dan Davies

Compelling
Reddit users’ failure to identify the Boston bombers doesn’t debunk the wisdom of crowds – James Surowiecki

Oxpeckers
“If Jill Abramson were a man…” – Ann Friedman

Growth Industries
Diseased pig carcass disposal is becoming a big business in China – Caixin

Popular Myths
Don’t buy a stock because you like a product – NYT

Politicking
The SEC may require public companies to disclose all political contributions – NYT

Indicators
The internet is obsessed with North Korea, even when there isn’t any real news – BCA Research

And, of course, there are many more links at Counterparties.

2 comments

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I am retired. I have been hearing a never-ending drumbeat from the Republican Party that seniors are bleeding the country dry and leaving their grandchildren to a life of poverty and destitution.

I paid into Social Security via payroll taxes for over fifty years, into Medicare via payroll taxes for over forty years, paid state income taxes for more than thirty-five years until a move to Florida in 1993, and have continuously paid local property taxes since 1963. I did not complain about paying taxes because I consider taxes (federal, state, and local, as part of the price of belonging to a civilized and educated community and nation.

Apparently, the Republican Party is grateful for my taxes paid; but now willing to complete their share of what most people thought was compact to pay while you are earning and capable and to receive benefits when you retire. Of course, the Republican Party is not alone; big business agrees fully and has aggressively pursued and successfully executed options to eliminate retirement pensions, health coverage, and jobs.

The Pew Research study released on 4/23/13 stated “During the first two years of the nation’s economic recovery, the mean net worth of households in the upper 7% of the wealth distribution rose by an estimated 28%, while the mean net worth of households in the lower 93% dropped by 4%, according to a Pew Research Center analysis of newly released Census Bureau data.

During the first two years of the nation’s economic recovery, the mean net worth of households in the upper 7% of the wealth distribution rose by an estimated 28%, while the mean net worth of households in the lower 93% dropped by 4%, according to a Pew Research Center analysis of newly released Census Bureau data.”
Not only did their share of wealth increase, the same study reported their aggregate share of the nation’s overall household wealth pie rose to 63% in 2011, up from 56% in 2009.
I would be very surprised if an analysis of the 2011 -2013 period did not show similar increases in individual wealth accumulation and the aggregate share of the nation’s overall household wealth.
Could you explain to me again how the President is making life difficult for the top 1%, much less the top 7%, when their share of the nation’s wealth continues to show an ever-increasing share to those at the top while the individual share and aggregate share held by the working, middle class, and retirees in the lower 93% continue the decline that has been underway since the 1980s?

Posted by ThoseWhoServe | Report as abusive

I hope some of your readers will follow the link to that Noah Smith piece on Krugman. It isn’t as pro-Krugman as your tease would indicate.

Here is a quick spoiler: Smith says that yes, Krugman has had a good prediction record of late, measured against both the overly optimistic (J. Paulson) and against the overly pessimistic (N. Ferguson). And Krugman himself surely believes that his prediction success validates his Keynesian view of the world.

BUT, Smith suggests, maybe there is another explanation. After all, Smith himself is not a Keynesian (he declares himself “agnostic” on key Keynesian matters), but his expectations have been in line with PK’s.

Perhaps those who have predicted successfully have simply presumed that the US and Europe [for whatever macroeconomic reasons] are following the course laid out for them by Japan since the early 1990s. The presumption that “we are like japan” accounts for the right predictions nicely without a lot of baggage.

Posted by Christofurio | Report as abusive