COLUMN: Forecast 2012: Has your net worth plummeted?
Dr. Joseph Eugene Stiglitz, an American economist and a professor at Columbia University. He is a recipient of the Nobel Prize in Economic Sciences (2001) and is a former Chief Economist of the World Bank. (Photo from Wikimedia Commons)
Editor's note: This post is part of a series by Dr. Baker on Our Values about core American values.This week Dr. Baker is revisiting his predictions for the top five values issues of 2012.
Economic inequality was my prediction in January for one of the top five values-related issues of 2012. Then, we discussed the growing gap between rich and poor in America, a gap that had reached epic proportions. There are many reasons for the wealth gap, but a struggling economy is one of them. Just how much as the bad economy affected the wealth of the typical American family?
A new Bulletin from the Federal Reserve — just released this month — tells us how grim the last few years have been. This report covers trends from 2007 to 2010, and I imagine that the trend has only worsened since then.
Here’s what the Fed reports: The median net worth of American families fell 39 percent from 2007 to 2010. The median in 2007 was $126,400. In 2010, the median had fallen to $77,300. The main reasons, according to the Fed, were changes in housing wealth and business equity.
This drop in net worth occurred across all income groups — with one big exception. Families in the top 10 percent of the wealth and income distribution did not participate in the sweeping decline in wealth. For the wealthiest Americans, the change was, in the Fed’s understated language, “muted.”
Vast economic inequality is a moral issue. It’s also an obstacle to growing the economy, according to Nobel laureate economist Joseph Stiglitz. In an article this month, he argues that we have to attack inequality to grow the economy.
“Since those at the top consume a much smaller fraction of their income than the rest, when money moves from the bottom to the top — as has been happening in the U.S. for the past three decades — total demand is weakened. The weaknesses in the economy today arise from lack of demand; firms won’t invest if there is no demand for their products.”
What's happened to your net worth?
Are you surprised at how large the drop has been for many families?
Should we attack inequality to grow the economy?
Dr. Wayne E. Baker is a sociologist on the faculty of the University of Michigan Ross School of Business. Baker blogs daily at Our Values and can be reached at firstname.lastname@example.org or on Facebook.