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The list of things that could be better in this country is long and distressing. But the good news is that economic conditions in the U.S. continue to improve, despite all the bad news.
Here are some charts that make the point:
Chart #1
Chart #1 shows the condition of U.S. households' balance sheet. Private sector net worth now stands at a record $154.3 trillion, almost double what it was just 10 years ago.
Chart #2
Chart #2 shows the inflation-adjusted net worth of U.S. households. It's been increasing on average about 3.6% per year since 1952. That works out to a 12-fold increase in just 70 years.
Chart #3
But, you say, the population has also increased a lot over that same period. So Chart #3 adjusts the data for Chart #2 by population, which has roughly doubled since 1950. Here also we see steady and impressive growth in inflation- and population-adjusted private sector wealth. By that measure, and as a rough approximation, the living standards of the average American have increased by a factor of almost 6 in the past 73 years.
Chart #4
It's outrageous that our federal debt as a percentage of GDP is almost 100%. It was about 60% in the early 1950s, then it fell to a low of about 25% in the mid-1970s, and since 2007 it has increased from just over 30% in 2001 to 95% now. Fortunately, the private sector has de-leveraged significantly—by about 40%—since 2007, as Chart #4 shows. It's now back down to where it was in the early 1970s.
21 comments:
love the optimism this really fired me up - great set of data
Great charts but my liberal friends will say that only a small % of US households hold most of the net worth, ie, there is much more inequality today than there was 70 years ago so we are worse off as a country. What say you to that?
Have your liberal friends define 'inequality' first. Why does inequality matter? It should not. There has always been inequality throughout history; saying inequality is "higher" today than in the past is nothing more than bating. As Mises observed, if you magically made everyone equal, the first transaction between a buyer and seller would make both "un-equal". One party would have more money, the other more stuff.
I like the adjustment for population growth.
What if one also adjusted for inflation?
Scott,
The plot on the "average" US real per-capita net worth growth is impressive. Do you have the data on the "median" value? This might be less influenced by the high new worth sector.
@pemdas1:
For Chart 1 we have to eyeball the large increase in net worth relative to debt to see that improvement in inflation-adjusted terms.
Charts 2 and 3 are already adjusted for inflation - that's what the term "Real" in their titles means, and what the y-axis labels showing "2023$" indicate.
Chart 4 is in percentages so inflation-adjustment wouldn't apply.
re: "federal debt as a percentage of GDP is almost 100%"
The 2022 deficit, 1.4T, was 100 percent of net private savings, 1.4T.
More comments on inequality: To begin with, the assertion that inequality has risen significantly in recent years and decades is debatable. It depends on how you measure it. There are some serious economists who can show that inequality has only increased marginally. Those who see it rising a lot tend to exclude certain measures of income (mainly welfare-related payments). But in any event, as Tom argues above, inequality will ALWAYS exist in a free market economy.
Wealth is created by making something that other people value more than the cost of producing that something. Lots of wealth in an economy means high living standards and high salaries for all. The more wealth the higher the standard of living.
There are two major inputs to an economy: capital and labor, and both are required for things to function. It takes capital to create jobs and productive advances. Without labor capital lies idle. If you create more capital (wealth) then labor becomes scarce—and therefore can command higher wages. If there is a shortage of capital in an economy then labor becomes abundant, and wages fall. A wealthy country will enjoy high wages and a high standard of living. Does it matter who owns the factory? No, what matters is that capital built a factor that employs people.
Scott,
Great article and graphs. The tremendous success of the private sector is what, ironically, allows the wastefulness of the public sector.
Regarding inequality, to the extent this should be measured at all, what should be measured is who is and is not above reasonable basic living standards. Beyond this, rather than try to measure wealth or income inequality, what we should measure is direct individual consumption in a normal day. The richest people in the world can only personally "consume" a tiny fraction of their wealth. i.e. Elon Musk can only eat 1 hamburger at a time, same as you and me. Musk and other "super rich" also probably spend a good bit of time doing things like watching Netflix or perusing social media on their phones, similar to tens of millions of other people in this country and the world. Viewed from the lens of direct personal consumption and "what do you do during 24 hours in a typical day", and having basic needs met, we are more equal than at any point in history.
“Does it not matter if the hungry are fed, if slums are replaced by decent and air-conditioned housing, if infant mortality rates are reduced to less than a tenth of what they were before? Are invidious ‘gaps’ and ‘disparities’ all that matter? In a world where we are all beneficiaries of enormous windfall gains that our forebears never had, are we to tear apart the society that created all this, because some people’s windfall gains are greater or less than other people’s windfall gains?”
-quote from Thomas Sowell’s book
‘Wealth, Poverty and Politics’
I hate the term inequality, it’s one of the latest leftists word mantras. But I would argue the quality of life has decreased. I saw few if any homeless people in cities in the 1960’s, it wasn’t until the late 70’s & early 80’s that they started showing up noticeable numbers. Today I see what appear to be thousands in the cities and the problem is getting worse, even though we are in a good economy. What happens if we under go a severe recession? Also the cities of the past were cleaner and better maintained in most cases. Crime is clearly worse today in most cities. Now, technology has improved life over many area’s, but it appears to me that many more people are being left behind today than in years past. People needing to rely on welfare payments as a way of life is also a sad commentary on current events.
Great post.
Inequality---maybe, but I will say this:
The entire West Coast needs to un-zone all property, and let builders build what they want.
Housing costs, due to government-mandated scarcity, are sapping household budgets.
Inflation cannot destroy real property nor the equities in these properties. But it can and does capriciously transfer the ownership of vast amounts of these equities thus unnecessarily accelerating the process by which wealth is concentrated among a smaller and smaller proportion of people. The concentration of wealth ownership among the few is inimical both to the capitalistic system and to democratic forms of government.
From Bloomberg today; median household income fell for THIRD STRAIT YEAR! Only half of us are doing well in today’s economy. It’s hard for me to see this ending well.
BLOOMBERG article headline;
Inflation Drags Real US Household Incomes by Most Since 2010
Median income fell for a third year in 2022, Census data shows
Poverty measure rose as pandemic-relief programs expired
By Alexandre Tanzi
September 12, 2023 at 9:10 AM CDT
Income inequality- I sometimes use this sloppy terminology, but the right way to think about it is poverty rate. The government measures say (census bureau) that the poverty rate hasn't gotten out of the 11-14% range since the mid-60s- when it was about 20%. Other economists have done their own studies and say the modern poverty rate is closer to 2%. By any measure, poverty is down over the past 50+years. https://leo.nd.edu/assets/339909/2018_consumption_poverty_report_1_.pdf
The GINI coefficient recently took a dive.
https://fred.stlouisfed.org/series/SIPOVGINIUSA
Human capital (education) is likely a more important differentiation. And the U.S. is falling behind.
And crime rates are likely a manifestation of these problems.
"The relationship between CDs and MMMFs on which we focus can be viewed as the inverse of the more commonly studied money demand function."
https://www.richmondfed.org/publications/research/economic_brief/2023/eb_23-30
Higher interest rates (Fed Funds) have not fully transmitted through the economy yet (e.g. corporate interest costs).
In the attachment, recessions didn't start until this item was sloping upward. It's now/still pointing downward/has a negative slope.
https://fred.stlouisfed.org/graph/fredgraph.png?g=18O6N
https://fred.stlouisfed.org/graph/?g=18O6N
For those who bemoan the rise of homelessness and the number that live below the poverty line (justifiable causes of concern), I would suggest spending some time perusing this site:
https://humanprogress.org
Mankind has never had it so good.
Inflation is the most destructive force Capitalism encounters.
Readers should note that calculating inflation on a year-to-year basis minimizes, over time, the rate of inflation since the rate is being calculated from higher and higher price levels. A $ today, using 1967 (a former base year), is equivalent to $9.33 in consumer purchasing power today.
In absolute terms, each year confronts all of us with a higher and higher level of prices with no end in sight.
read://https_www.zerohedge.com/?url=https%3A%2F%2Fwww.zerohedge.com%2Fmarkets%2Fheres-why-housing-unaffordable-bottom-90
The economy is awash with liquidity. DXY just hit 105.34. And at the same time oil is at 90.69 and rising. That’s not evidence of a slowdown.
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