Counterparties: A recovery for the 7%
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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
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