In economic recovery, the rich recover more

Mitchell Hartman May 16, 2012

In economic recovery, the rich recover more

Mitchell Hartman May 16, 2012

Kai Ryssdal: I don’t know if he was the first to say it, but Ronald Reagan’s the one who made it famous. That question that pops up every presidential election cycle: Are you better off than you were four years ago?

To be fair, 2008 was kind of an extraordinary time. Things were already getting bad. By early 2009, things were downright terrible. The recovery the past few years has been slow, and not all that impressive. So you might think the answer to ‘Are you better off?’ is a no-brainer. We’re not better off one bit.

But it turns out, the real answer is that it kinda depends on how high you’ve climbed the economic ladder. From the Wealth & Poverty Desk, Marketplace’s Mitchell Hartman explains.

Mitchell Hartman: To show you how much our total wealth, as a nation, has fallen in the past five years, I’ve pulled out the family coin jar. My 15-year-old son Jeremiah is going to help out.

Jeremiah: Hey.

He did business math in school. Now, in the jar, we’ve got $1 in quarters — for every trillion dollars in assets Americans held before the recession.

Jeremiah: Stocks, bonds, houses, furniture, pets.

Pets? Maybe a pedigree poodle.

Jeremiah: Gold, silver, electronics, stuff.

We just poured out coins representing the $65 trillion that Americans used to have. Now, erase $15 trillion of that — one-quarter of our former net worth. In the recession, it got flushed right down the toilet.

But now, my hand goes down into the toilet.

Jeremiah: Dad, that’s gross.

And I take $8 trillion back out, because flushing coins down the toilet is hell on the plumbing. And also because in the last few years we’ve re-gained some of what we lost.

Let’s bring in investment strategist John Canally to explain this. He’s at LPL Financial in Boston.

John Canally: The stock market, since the bottom in March of 2009, if you include dividends — up about 107 percent. But over on the other side, the real estate side, you’re still down 25 percent to 30 percent.

So, add the rebound in stocks, and subtract the continuing losses in housing, our total household wealth as a nation is still nearly $7 trillion in the hole.

But not everyone has fallen as far down that hole. NYU economist Edward Wolff says, consider the top 1 percent.

Edward Wolff: The very rich hold most of their wealth in the form of stocks and business equity, as well as investment real estate. In contrast, among the middle class, about 70 percent of their wealth consists just of their home.

And, says Wolff, since housing has done so much worse than all those financial investments, like owning equities, or rental properties, or a business.

Wolff: I’ve estimated that the wealth of the middle-class went down by a staggering 37 percent. The rich, on the other hand, saw their wealth go down 15 percent.

And the higher up the pecking order, the better the balance sheet looks.

Hawthorn receptionist: Thank you for calling Hawthorn, this is Jane.

We’re checking in with Hawthorn Family Wealth, it’s part of PNC Financial in Philadelphia. The clients here — ‘ultra-high-net-worth’ — with at least $20 million to invest.

Thomas Melcher is managing executive.

Thomas Melcher: It’s fair to say that our clients are squarely among the 1 percent.

Actually, the top sliver of 1 percent. And how’s this bracket doing? The firm did a survey.

Melcher: And we asked that specific question, which was: What happened to your net worth over the last five years? Twenty percent said that they experienced either a decline or a significant decline of their wealth. The surprising part is the other 80 percent who said that their wealth was basically the same or higher, today.

Why so many in the black? After all, their stocks took a hit, too. And multi-million-dollar homes don’t fetch what they used to.

Melcher: But at the same time you had essentially a bull market in U.S. government securities. Some commodities were doing reasonably well.

With their multiple investment options, the wealthy could still make some serious money.

And remember the stimulus — the Fed keeping interest rates low to juice up the private sector? John Canally says that helped, too.

Canally: Dividends from equities are now back at an all-time high. And the companies were able to pay those dividends mainly because the Fed kept rates lower for longer. That allowed profits to grow.

Since 2007, governments and central banks have done everything to re-float financial markets. To look at stocks and corporate profits, it’s been a roaring success. And that’s where the rich derive most of their wealth.

The housing and job markets, though, haven’t done so well. That’s where most middle-class people get their wealth.

Edward Wolff says this is the ongoing legacy.

Wolff: There was a fairly sharp increase in wealth inequality during the Great Recession.

The stock market’s come back most of the way to its pre-recession highs. But housing could take a decade to recover. So the rich are likely to keep getting richer, while most everyone else stays stuck.

I’m Mitchell Hartman for Marketplace.

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