The Brookings Institute was once a bastion of liberal thought, so much so that it was hard to find a reference to it that didn’t begin with “The Liberal Brookings Institute”. Its scholars were top-notch exponents of liberal values, and its reports and studies were widely reviewed and accepted. It was so important that when the conservative movement to control public discourse got underway, it was the model for the American Enterprise Institute, an openly neo-conservative, not to say, Paleolithic, perch for right-wing loyalists waiting for government positions.
Now, though, it has become the Alan Colmes of think-tanks, fake liberals who meekly accept conservative mythology on every major point, but says we should at least think of the misery we are causing. Here’s an example. Scott Winship is a fellow in economic studies at the Brookings Center on Children and Families. He recently wrote a piece explaining that it is no big deal that there has been a massive decline in median wealth in this country as a result of the housing crash and the Lesser Depression. After all, he says, the median net worth increased 15% between 1970 and 2010, based on the Federal Reserve Board’s Survey of Consumer Finances.
There is, of course, the obligatory discussion of how bad it is for some people who wanted to retire, say, or pay for college for their kids, or sell a house and move, but overall, it’s not so bad. Just think, 15% since 1970. Winstead explains that most of the gains in wealth in the 2000s were in home equity, and were therefore illusory.
Home equity is the major source of wealth for most Americans, and there they were, happily increasing their net worth by investing in real estate. He doesn’t mention that if Bush administration cheerleaders and PR flacks for real estate and financial interests hadn’t been spreading the story that real estate equity gains were real, they would have acted differently. They would not have borrowed as much and they would have saved more. But hey, they’ve all got refrigerators.
But that 15% is a big deal to Winship. We are still richer than we were in 1970.
With this in mind, another consideration that ought to affect how we view wealth levels is the fact that none of the figures above include public and private commitments that most Americans can count on to meet their needs in old age.
Of course, everyone, including the Liberal Brookings Institute, agrees that we have to slash those commitments so we don’t have to raise taxes on the rich. And Winship ignores the fact that in 1970, most middle-class people had a pension plan through their employer or their union, which gave them a sense of security so they could enjoy their work lives and live within their means. A college education was a real possibility for everyone, because of state support for university and community college systems. That’s over. Now those slowly dwindling real wages have to pay for retirement and education and a lot more.
Here is the key point. It isn’t enough to look at the median net worth. A family with a net worth of $100,000 and no debt is in an entirely different position than a family with assets of $400,000 and debt of $300,000. On the same income, the first family is much more comfortable and secure. It can save or spend as it sees fit. The second family is enchained by that debt. Every month, it has to fund its debt obligations before it eats and before it saves for retirement.
The ugly debt picture is clear in the Survey of Consumer Finances for 2010. In the top decile by net worth, the leverage ratio barely budges from 1989 to 2010, going from 4.9 to 6.1%. In the second quartile (50-75%) the ratio went from 25.4 to 35.5%. In the third quartile, it went from 43.6% to 64.4%. I don’t have the earlier SCFs, but I’d guess they also show a long-term rise in leverage. Sure these families in the middle saw an increase in their net worth between 1970 and 2010, but that large increase in leverage means their lives are more constrained, their sense of security is imperiled, and their ability to save is impaired.
Mistakes happen. But the tell that Winship is a hack is this. He says that the net worth of the top 10% decreased by $450K over the period 2007-2009. Every other number in the article is based on the 2010 SCF. By 2010, the median net worth of the top 10% had dropped only $128K. Most people are pretty sure they have fully recovered all losses, because their net worth is mostly financial assets, not homes or home equity.
Scott Winship, Brookings Senior Fellow in the Center on Children and Families. Next up, a paper showing it isn’t so bad that children live in cars because their parents are broke.