Wednesday, July 09, 2008

Wealth and Quintiles

Over at BlueOregon, I posted the second of my "myth-busters" series recently, this one on wealth. Wealth_changeI won't reprint it here, but I will offer the key graph that illustrates the point: the poorest 40% of Americans lost nearly 60% of their actual wealth between 1983 and 2004. The graph is particularly potent because you see them hanging way below the zero line.

As with the first myth-buster, this one drew insightful, entertaining comments, including this one by David Wright:
From the report you cited, it looks to me like the top 10% of Americans went from holding 68.2% of total wealth in 1983 to holding 71.3% of total wealth in 2004. An increase, to be sure -- their piece of the pie got about 4.5% bigger over those 20 years (put another way, they got 3.1% more of the total pie)....

Rich people have a whole lot of the pie. Poor people have not much of the pie at all. And while the slices have shifted a bit over the past 20 years, that fundamental situation does not seem to have changed very dramatically, in real terms, despite the alarming numbers you quote.
Numbers are flexible, and it's not always obvious what they mean or how to interpret them. But where David's analysis is technically true, it conceals rather than reveals the impact at both extremes. Examining the dollar effect (this was a post about wealth) by analogy is helpful.

Let's say there are $100 and 100 people in 1983. Ten of those people have $68 and one has $34. Sixty people share $6. (These are figures taken from the report I cited.) That $100 appreciates 75%. In 2004, ten of those people have $125 and the richest of them has $60. The poorest sixty share $7, and of those, the poorest 40 share just 35 cents--less than the 90 cents they shared in 1983.

Put another way: if US policies has changed so that instead of the already-rich garnering 3% more of the pie they had lost 3% that instead went to the poorest 60%, that group would share $14. Could the richest 10% have squeaked by with 65% of all US wealth? What if they had to squeak by with, say 60%? Would that catastrophically damage the economy?

(Incidentally, David does a similar calculation and factors in population growth. But remember, these are mean figures, so it doesn't matter how much the population changes. The analogy relies on the 100 to stand in as the average or mean of the sub-population.)

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