Fed Says Growth Lifts the Affluent, Leaving Behind Everyone Else - NYTimes.com

Fed Says Growth Lifts the Affluent, Leaving Behind Everyone Else - NYTimes.com

"Economic
growth since the Great Recession has improved the fortunes of the most
affluent Americans even as the incomes and wealth of most American
families continues to decline, the Federal Reserve said Thursday.

For
the most affluent 10 percent of American families, average incomes rose
by 10 percent from 2010 to 2013. For the rest of the population,
average incomes were flat or falling.

The
least affluent families had the largest declines. Average incomes
dropped by 8 percent for the bottom 20 percent of families, the Fed
reported in its triennial Survey of Consumer Finances, one of the most comprehensive sources of data on the financial health of American families.

The
new report, broadly consistent with other data on the aftermath of the
Great Recession, underscores why so many Americans think the economy
remains in poor health. While the pie has grown, most people are getting
smaller slices.

The
result is that wealth also is increasingly concentrated. While overall
wealth barely changed during the survey period, the money sloshed from
the bottom toward the top. For the top 10 percent of families, ranked by
income, estimated average wealth increased by 2 percent to $3.3
million. For the bottom 20 percent of families, average wealth sharply
declined by 21 percent to $65,000.

There
is growing evidence that inequality may be weighing on economic growth
by keeping money disproportionately in the hands of those who already
have so much they are less inclined to spend it.

President Obama last year described
income inequality as “the defining challenge of our time.” The Fed’s
chairwoman, Janet L. Yellen, said earlier this year it was “one of the
most important issues and one of the most disturbing trends facing the
nation.”

But
the trend so far has provoked little more than public outrage and
political debate, in part because there is no agreement about the
causes, let alone potential remedies. Some economists point to the
impact of mechanization and foreign competition. Others say that legal
changes have undermined the bargaining power of workers. Still others
think the economy is suffering from a drought of lucrative innovations.

The French economist Thomas Piketty argued in his recent book that wealth concentration is a natural tendency in market economies.

The
Fed’s report said the widening income gap represented a reversion to a
long-term trend that was disrupted by the recession. It said that the
top 3 percent of families collected 30.5 percent of all income in 2013,
up from 27.7 percent in 2010, but still slightly below their 31.4
percent share in 2007.

The
concentration of wealth continued without interruption, albeit at a
slower pace during the recession. The Fed said that the top 3 percent of
families held 44.8 percent of wealth in 1989, then 51.8 percent in 2007
and 54.4 percent in 2013.

One
signal of the growing divide is a decline in the share of families that
hold assets. The share of families that directly own stock fell to 13.8
percent from 15.1 percent, the Fed found. The share of families with
retirement accounts, savings bonds and life insurance also declined.
Likewise, the share of families that owned homes, owned rental
properties or had a stake in a business declined.

In
a more positive trend, debt burdens also fell. The debts of the average
American family continued to exceed its annual income, but the ratio
declined to 105 percent of income in 2013 from 125 percent of annual
income in 2010. Importantly, the share of Americans probably struggling
to pay those debts has also declined. Just 8.2 percent of households
devoted more than 40 percent of income to debt payments in 2013, the
lowest rate since the 1990s."