The federal Reserve released its report last week and reported that total household net worth in the fourth quarter of 2018 dropped by the largest amount since the fourth quarter of 2008 when the country was in a steep economic recession. Total household net worth is a measure of the assets - such as homes, stocks and bank accounts owned by American families and nonprofits minus their debts. The drop was $3.7 trillion, a 3.5% quarterly decline.
Accordingly to the report, which was carried by the Huffington Post, the change was driven buy the poor performance of the stock market in the fourth quarter of 2018. Other findings were: (1) Most of the net household worth and wealth in America, 79% is owned by the richest 10%. (2) Only 21% of America's net household worth and wealth is owned by 90% of American families. (3) Half of American families do not own stocks. (4) The top 10% of families control 84% of the stock market. (5) Stocks have recovered most of their 2018 fourth quarter losses.
Note 1: Taken together, the numbers are a reminder that the stock market is not the economy and that big national level data sets may not necessarily reflect financial reality for typical American families, many of whom live paycheck to paycheck and struggle to meet even small unexpected expenses. (Also reported in the report.)
This writer believes the report is another window we can see through that exposes an American economy that is fragmented by a lack of real economic policy. We know that over the past several decades productivity has increased dramatically while median family income has increased very little in relation. We also know during that same period, CEO's and executive pay and bonuses have increased dramatically.
The 10% of American families that continue to own 84% of the stock market have the resources to continue to buy in the market even when it collapses, hold onto those stocks until the marked comes back and make even more money. That is what they did when the marked collapsed in 2008 and other years. What is needed is an economy that produces good paying jobs so other families can have the purchasing power to invest in the stock market or other options available that can improve their net worth which would allow them to be more independent and diversified in their financial well being.
The Federal Reserve comment shown in Note 1 above is right on target and should be an eye opener to those that believe trickle down economics is an economic policy.
Note 2: According to the Economic Policy Institute, Americans are working more productively but the fruits of their work have primarily gone to those at the top and to corporate profits, especially in recent years. From 1948 - 1973 productivity was up 95.7% and hourly wages followed and were up 90.9%. Workers shared the fruits of that productivity as they should. But all of that changed.
From 1973 - 2017 net productivity increased 77% while hourly wages increased only 12.4% for the typical worker. The gap between increased productivity and increased wages became essentially stagnated. And the greatest part of the increase in wages during that 44 year period occurred between 1995 - 2002 during the Clinton economy.
Of course any one who follows PolitiDose knows that it was the Clinton administration that formulated a sound all around economic policy that not only created a record number of jobs and a record economy that balanced the federal budget. The poverty rate dropped by the largest percentage in the past 40 years, billions on the national debt was paid and corporate America invested a higher percentage of its resources in new plant and equipment than at any time in the past 40 years. And President Clinton did not cut taxes for corporate America or the wealthy.
And yes my fellow Americans, understanding the past is still the key to a better future. The worlds very first civilization, the Sumerians knew that and taught that.
This commentary written by Joe Lorio
