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Tuesday, February 5, 2013

The Net Worth of America

Total personal wealth in the United States in 2010 was about 58 trillion dollars.  That is our net worth.  That’s everything:  houses, farms, real estate, bank accounts, stocks and bonds, mutual funds, cars; net of all liabilities, debts and mortgages.   This number is important, because it gives us a relative measure to other big numbers, for example, the national debt, or the unfunded liabilities of the Social Security system.   Incomprehensibly big numbers become comprehensible when we can compare them to other big numbers of the same order of magnitude.   And our net worth is a useful yardstick for recognizing when other big numbers are absurd.

Our total net worth is fairly easy to calculate.   I took the number of households according to the age of the Head of Household from the 2010 Census.  I found the mean and median net worth according to the age of the Head of Household from survey data published by the Federal Reserve.  From the mean figures, we can see the total wealth by the age group, and from the median figure, we see the wealth of a typical family.  My estimate of the $ 58 trillion total net worth of the United States compares favorably to the $50 trillion  published by Harvard in 2004, and $ 54 trillion published for 2009 in Wikipedia (but unreferenced).   By comparison, global household net worth in 2000 was estimated at $ 125 trillion, adjusted for purchasing power (calculated from data in Davies, et al, 2007). 

The household net worth figure includes the value of most of American businesses, through ownership of stock and mutual funds by individuals, including 401k and other retirement plans.  It does not include the value of trusts, churches, non-profit organizations, co-operatives, and pension funds; or the net worth of local, state and federal governments; or of publically owned infrastructure.   But for this discussion, let’s consider that household wealth represents the net worth of the United States, and disregard the possibility of selling Alaska back to Russia, or Louisiana back to France.

Distribution of Wealth by Age
Wealth in America is concentrated in middle-aged and elderly households.  About ninety percent of the wealth in America is held by people over 45 years old.   About sixty-five percent of the wealth is held by people over 55, and thirty-three percent by people over 65 years old.  A chart shows the mean and median distribution of net worth by age of household; the wide separation between the mean and median lines indicates the skewness of the distribution of wealth in America.

The median net worth for young families (< 35 years old) is $9,300, less than one-third of the global average household wealth ($33,800, Davies et al, 2007).    The deteriorating economic condition of many families can be seen by comparing the median net worth by age across through the first decade of the century.  The 2008 recession had a significant impact on family wealth in all households except the most elderly.

The concentration of wealth in older households has consequences for children in America.  Households headed by people under the age of 35 have the lowest net worth, and of course, these are the households raising small children.  Twenty-two percent of American children are living in households below the poverty line, which is defined as having less than half of the income needed to cover basic expenses.  Forty-five percent of American children live in low-income households.

Net Worth of America, by Comparison to Other Big Numbers
We can compare a few other economic numbers to the $ 58 trillion in household wealth, which provides a yardstick for seeing the significance of other big numbers.
  • United States' externally held ("publicly held") debt is about 12 trillion dollars.   Including government debt held by other government agencies (representing the Social Security trust fund), the total US federal debt is about $ 16 trillion, or 27 percent of our total net worth.
  • The total value of publically traded stocks, representing the market value of all major companies in America, was about $ 12 trillion in 2010, or about 20% of household wealth.    Total market value of all stocks today is about $ 16 trillion.
  • The United States currently has a negative net international investment position.   Foreign interests hold a net $ 2 trillion dollars of American wealth, greater than the assets which Americans own overseas.
  • The United States money supply (M2) is about $ 10.4 trillion.   This measure of money supply has increased from about $ 7.7 trillion in late 2008, and increase of $ 2.7 trillion.  The increased money supply is largely a result of the Federal Reserve program termed “quantitative easing”.  
  • The Wall Street Journal recently published an article by Republicans Chris Cox and Bill Archer, which claimed that unfunded liabilities for Social Security and Medicare are accruing at a rate of $ 7 trillion per year.   According to Cox and Archer, unfunded liabilities for these programs now total about $ 87 trillion.  If correct, the unfunded liabilities of these programs befitting senior citizens greatly exceed the total net worth of all households in America.

Survey of Household Net Worth

US Census Statistical Abstract

US Census Bureau Publication:  Income, Expenditures, Poverty and Wealth

Wealth Inequality: Data and Models
Marco Cagetti, Federal Reserve Bank of Chicago; University of Virginia

World Distribution of Household Wealth, Davies, J.B., et al, University of California, Santa Cruz, 2007.
Year 2000 World Household Net Worth, 3.7 billion adults, average net worth $33,800, adjusted for purchasing power.   Calculation shows global net worth of 125 $ trillion, adjusted for purchasing power.

22 percent of children are in households beneath the poverty level, defined as $23,000 income for a family of four, or less than half of what is needed to meet basic expenses.   45 percent of children are living in low-income households.

Chris Cox and Bill Archer, WSJ, Nov. 28, 2012
The actual liabilities of the federal government—including Social Security, Medicare, and federal employees' future retirement benefits—already exceed $86.8 trillion, or 550% of GDP. For the year ending Dec. 31, 2011, the annual accrued expense of Medicare and Social Security was $7 trillion.



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