Running down your capital

A third world economy is not one in which everyone is poor, only most of the people with the elites still managing to do all right. The US is not there yet, but it is trying. This is an astonishing story, from The New York Times even, titled, The Typical Household, Now Worth a Third Less.

Economic inequality in the United States has been receiving a lot of attention. But it’s not merely an issue of the rich getting richer. The typical American household has been getting poorer, too.

The inflation-adjusted net worth for the typical household was $87,992 in 2003. Ten years later, it was only $56,335, or a 36 percent decline, according to a study financed by the Russell Sage Foundation. Those are the figures for a household at the median point in the wealth distribution — the level at which there are an equal number of households whose worth is higher and lower. But during the same period, the net worth of wealthy households increased substantially.

To understand all this, you need to understand the nature of economies from a classical perspective. A modern textbook will leave you almost incapable of seeing what’s happening, in the same way that knowing one economy had 6% growth and another had 3% will tell you nothing about the relative standards of living.

But this much is clear. The US is heading into an astonishing level of poverty across a wide expanse of what had not that long ago been the world’s most productive nation.

This entry was posted in Classical Economics, Economics and economy, International. Bookmark the permalink.

27 Responses to Running down your capital

  1. stackja

    The fellow in the White House now, is not worried.

  2. entropy

    Kids need to be fed a diet of David Weber, Louis Lowry and Orson Scott Card. None at all likely to get on modern American, let alone Australian young adult reading lists.

  3. Andrew

    The article goes on to find that the 95th percentile (the people trying to create businesses to rebuild the economy from Clinton’s subprime blowup, and make jobs for the other 90%) had rising net worth – by a massive 14% in a decade!! Quelle horreur! It didn’t actually go on to cite the solution, which was so axiomatic as to not require verbalisation, but clearly wealth must be taken from the 5% and given to the 95%.

  4. JC

    If housing is included in this so-called study then its pure sham. The reason is simple.

    Lets say someone has equity of $100,000 in a home worth $3 100,000 pre GFC.

    House prices fell 30% in the GFC so the equity value of the house fell from $100,000 to $10,000. That’s a big drop.

    Lets say a person in a higher bracket had the same house fully paid for. Their equity value would have fallen from $300,000 to $210,000.

    The “studiests”of this ‘research” are a bunch of dishonest clowns.

    Fuck the left are dishonest arseholes. There’s nothing they wouldn’t lie about.

  5. Peter

    Weber is too “pink” for my liking…and OSC should have stopped after Enders Game.

    But yes… good reading affects thinking.

  6. H B Bear

    The opportunity cost of those free Obamaphones.

  7. blogstrop

    Political Correctness is the killer of western nations. Not quickly, but surely.

  8. rickw

    I was in Cincinnati last week, in 1950 a short trip down the Ohio River would take you past probably 50% of the worlds top machine tool manufacturers. This industry didn’t disappear, it simply went to Japan, Korea, Taiwan and then China.

    I think the last to hold out was Le Blond (1996?), if you go to the Rookwood Shopping Centre, the only thing that remains of the vast manufacturing plant that used to cover the entire area is the chimney and adjoining power station building (now a Mexican restaurant).

  9. mareeS

    Average household net worth down by 36%. That’s quite a shocking figure if it includes all capital and earnings across the population. Spain and Portugal spring to mind.

  10. Bruce of Newcastle

    Its ok, if you go low enough you qualify for food stamps and free phones.

    That is socialism. Everyone is equal. Equally poor. Until, eventually, there is no toilet paper left in the shops or water in the taps. Then everyone is equally smelly, too.

  11. Dave Wane

    Too much of that nation’s wealth being wasted on propping up an ever expanding federal government (and state and local government), when it should be in the hands of individuals who are far better able to make decisions how to best utilize those funds.

    Whilst taxes are generally much lower and regulations far fewer in the US than Australia, they sure still have acquired the Big Government disease just like we have. The entrepreneurial spirit that built the US and made it the world’s most successful nation is being wiped out at the alter of Big Government.

    Be interesting to see a graph showing the decline in household wealth and also the increase in the size of government.

  12. Dave

    I find that the US financially, and Britain (and Europe in general) culturally, look non-viable as nations in the near to middling future. The instant the default international currency is no longer the USD, the USA are gone. Like a sparrow hitting a window. Australia could go either way. Depends if the aspirants in the ALP, the Greens and particularly the PUP self-combust politically in the next few years. Australia will need to make its own way and its own accommodations with the PRC within a couple of decades time. But it had better have used its uranium ore resources and technical expertise to have developed a nuclear deterrent first, so as to be able to negotiate from a position of strength.

  13. So shrewd to expatriate all that CO2 into Asia’s atmosphere. Suckers.

    Moreover, I’m told developed West is now on track for a huge boom in eco-tourism and green jobs…whatever they are.

  14. George

    You need only visit to understand these data. Outside the urban centres of NY etc the condition of most communities is in obvious decline. Local government is often insolvent. Infrastructure is in poor shape. Schools and hospitals are run down.
    For three decades that have been running policy for asset traders at the expense of sustainable capitalism. They have not even managed to rein in the money market funds.
    Given the capture of DC by the vested interest lobbies it is unlikely to change any time soon.

  15. Alfonso

    The US has exported its manufacturing industry. It’s as simple as that.

  16. Notafan

    Can’t buy American cotton sheets, the mills in North Carolina were derelict when I was there, derelict factories too in Newark New Jersey. It was depressing. Too few jobs for the average Joe. At least there was growth in right to work Tennessee.
    How much though is that loss in depressed house prices?

  17. mundi

    Net worth is a BS measure because of the movement of assets. Simply use the amount of wealth created (or inflation adjusted income) to make a more realistic comparison.

  18. Rafe

    USA, the land of opportunity? No, the land of predatory regulators.

  19. Brett_McS

    Perhaps all those new, freedom-loving youngsters coming over the Rio Grande could be settled in counties in order of wealth. Places like Marin County, Marthas Vineyard, etc should get bulk of the new arrivals. That should rejig the wealth gap in the right direction as the property values achieve more equitable levels.

  20. Tel

    The US has exported its manufacturing industry. It’s as simple as that.

    The USA was the largest manufacturing economy on Earth in 2010, but now are the third after China and Germany. The USA once had a massive lead in technology, now they have a narrow lead. They once had a strong free market economy, now they have a “mixed economy” leaning towards outright socialism in some spheres.

    After WWII, the USA had an influx of the best of the best foreign workers, anxious to become American, now they have a far lesser influx of quite good workers, but at the same time an exodus as quality engineers find it easier to find jobs in Asia. The US dollar does not have the same strength it used to have, and slowly but surely is moving away from being the defacto global reserve currency as more bilateral currency swaps are put into place.

    All told, it looks like they did something wrong, but to some extent reversion to the mean was inevitable.

    Something I’ve been arguing elsewhere: the combination of low interest rates, high tax and outright confiscation of savings implies a reduced incentive for any above average skilled worker to work hard, this in turn imposes reduced production. Without savings you cannot have investment… someone must necessarily produce more than they consume in order for investment to take place. If you punish everyone who produces more than they consume, then eventually they get the message and avoid doing what they have been punished for. Low interest rates (imposed on the market artificially by government intervention) must therefore reduce investment. I know, I know, it’s supposed to be the other way around, but, but, Say’s Law: production comes first.

  21. mareeS

    Go on a road trip in the US to see where the rot is. First time I had that pleasure was Route 1 in 1976, pure driving heaven. Other routes in other later years also were up there in driving quality. I was actually dodging potholes in some stretches in 2012. If roads start to go like that, so do bridges, eventually, and that’s when you know infrastructure is breaking down and a budget is close to being busted.

  22. The things that happen when each generation is less genetically fit than the generation before.

  23. Marion of the Glades

    @Driftforge: Ja, Mein Fuhrer!

  24. Ant

    But this much is clear. The US is heading into an astonishing level of poverty across a wide expanse of what had not that long ago been the world’s most productive nation.

    Well, they voted for socialism. Twice. Obama is now calling it “economic patriotism“.

    But don’t worry. The DC beltway is doing quite nicely.

  25. Driftforge

    Marion of the Glades
    @Driftforge: Ja, Mein Fuhrer!

    Sometimes I think that the losses in war which are least recognised are in the areas most closely associated with the losing side. Genetics didn’t stop occurring because the German’s used it as cover for the commissioning of atrocities.

    We stopped studying it, and proceeded to change our society in way that reversed the gentle increase in human capacity that had been occurring since around 1200 AD.

  26. thefrollickingmole


    You do have a point about the waste of “human capital” engaged in by the nation as a whole over the years.
    Unfashionable as it is to say genetics does play a part in the trajectory of a country. (Though immigration can mitigate this?) We actively subsidize people to breed in Australia, and as the old saying goes, you want more of something, subsidize it.

    A 3rd generation bong-wizard is more likely to breed than a Mensa candidate
    Sheila-unmarried-mother-of-6-to-7-different-fathers has already bred more before the future female doctor has left uni.

    Thats not a cry for eugenics btw, thats a cry for “you breed em, you feed em” in the strictest possible form.

Comments are closed.