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Thursday, July 19, 2012

U.S. Trails at Least 15 OECD Countries in Median Wealth

Via @exiledonline, I learned today (July 18) that Canadians are richer than Americans. This is rather surprising, since GDP per capita is higher in the U.S than in Canada.: $48,100 vs. $40,300 (at purchasing power parity or PPP), according to the CIA World Factbook. But in fact things are much worse than that, as 15 OECD countries (plus Singapore and Taiwan) have higher median wealth than the U.S. does. There may even be more, as the Credit Suisse report I discuss below does not give median wealth data for several countries with higher mean wealth than the U.S.

Most reporting has been based on a story that was run in the June 30th Globe and Mail claiming that average (mean) Canadian household wealth had reached $363,202 vs. just under $320,000 in the U.S. This is not a particularly informative statistic, however, since wealth is even more unevenly distributed than income, and income in the U.S. is already highly unequally distributed. What we really need is median net worth, i.e. the level at the exact middle of the net worth distribution in a country. G&M commenter "TJMone" picks up that point, receiving an answer from "porkbarrel pundit": a Credit Suisse report from October 2011 (via LSM Insurance), shows that the median net worth per adult in Canada was $89,014, compared to just $52,752 in the U.S. (all figures in U.S. dollars).

American reporting based on the study in the G&M did not start until 18 days later, when an article in U.S. News & World Report picked it up (Canadians are right: no one in the U.S. is paying attention to them). Moreover, no one picked up on the much better data in the Credit Suisse report until later in the day, when Dylan Matthews at Wonkblog wrote a great story on it (there are many high-quality comments, too). It turns out that lots of OECD countries, including economic basket cases Italy, Spain, and Ireland, have higher median wealth than we do. See the chart below:

http://www.washingtonpost.com/blogs/ezra-klein/files/2012/07/medianwealth.jpg
Source: Dylan Matthews, based on data from Credit Suisse

It is mind boggling that median Australian net wealth per adult is four times that of the U.S., and Italy is three times as high. Ireland and Spain, meanwhile, are also higher despite having housing busts similar to that in the United States. What is going on here?

Part of the answer is more equal income distribution. According to the Credit Suisse report, mean wealth per adult is just shy of 5 times median wealth in the U.S., whereas in Canada it's a little less than a 3:1 ratio (see Table 7-1). Other countries with higher median but lower mean net worth per adult are Taiwan, Finland, Germany, Ireland, Israel, the Netherlands, New Zealand, and Spain. Australia has a higher mean net worth than the U.S., but its ratio of mean to median net worth per adult is less than 2:1.

Another part of the answer may be that in many other wealthy countries, households have less debt. If you remember Michael Moore's movie Sicko, in one scene he interviews an upper-middle class French family and asks them what debt they have. Their only significant debt is their mortgage, because they didn't have to take out loans to go to college. The Credit Suisse report finds this pattern (unfortunately, only mean debt, not median debt). Mean debt per adult (see Table 2-4) is $59,362 in 2011 for the United States, whereas for France it is $40,873, Germany $33,424, and Italy only $24,291. Of course, this isn't true of all countries: Ireland and Switzerland both have much higher mean debt per adult, but they also have about twice the median wealth per adult of the U.S.

This analysis is hardly exhaustive; I bet a good book could be written on the subject.

One final point: Matthews skewers the claim by Globe and Mail author Michael Adams (whose firm conducted the study discussed in his article) and later commenters on both sides of the border who accepted Adams' claim that this was a historical first. As he shows with U.S. and Canadian government data, Canada's median household net worth was significantly higher in 2004-5, before the crisis, than here in the U.S. Given the huge disparities between the United States and some of the other countries, it is likely that net worth per adult has been higher in a number of these countries for quite some time. These data reflect trends that have been developing for a long time, and are not purely driven by the economic crisis or by any single set of policies. But they make for sobering reading, and deserve more than the superficial analysis most of the U.S. press has given them so far. Bravo to Matthews for a great piece of analysis.

Cross-posted at Angry Bear.

16 comments:

  1. Replies
    1. Glad you liked it; I left a comment on your post.

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  2. Hi Kenneth. Wealth distribution is a really important econmic measure that gets very little mainstream coverage. Another major economic problem is debt, and the real creators seem to be able to blame the other side, every time in every country.

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  3. as an Australian seeing this graph for the first time, I'd say pretty sweet ! for me ...

    as for USians not being told so much, I'd say rope in our escaped Oze Rupert Murdoch before he derails your next election and makes your wealth distribution even more unequal ...

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  4. Jefferson thought wealth distribution was important as well:

    "Another means of silently lessening the inequality of property is to exempt all from taxation below a certain point, and to tax the higher portions of property in geometrical progression as they rise." Jefferson to Jmes Madison 28 Oct 1785

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  5. Do the wealth figures include a discounted value for pensions that residents will receive in the countries they live in?

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    1. According to the just-released 2012 Wealth Report, it includes the value of "personal pension fund assets," but not pensions that would be received from the state. For the U.S., then, that would seem to mean that your 401(k) account is counted but not Social Security.

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  6. I also watched Moore's movie and it's frustrating to see that Americans don't have the same health coverage as Canada, France and Guam have. Additionally, there was a certain video shown in the movie wherein an elderly lady was thrown out of a service car from a certain hospital due to non-paying hospital bills. In France, patients get reimbursements from the hospital, including their fare.

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  7. Guam is part of the U.S. Do you mean Cuba?

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  8. Great information....now how do we improve? Other than eliminating current office holders in congress.

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  9. How come Sweden and Denmark trail the U.S. in terms of wealth distribution (If I read this table well)? This goes against all we about wealth distribution in these countries. Can someone explain please? And how about the U.S. trailing China? This too goes against all we know.

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    Replies
    1. You are not reading the table correctly. First, as I explain here (http://www.middleclasspoliticaleconomist.com/2013/06/us-median-wealth-only-28th-in-world.html), the Denmark figure in this table was underestimated, and when corrected in the 2012 report, it was higher than the U.S. Second, being below the U.S., like Sweden was, does not mean it has a more unequal wealth distribution, just that it has a lower median wealth per adult. For equally distributed societies like Sweden, this is because it has a much lower mean wealth per adult than the U.S. Note, however, that Sweden did pass the U.S. in the next version of the report. Finally, it is not China, but Taiwan, that the U.S. is trailing.

      Hope this makes things clearer.

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  10. Hi Kenneth,

    This is really interesting - very insightful. Have you seen any work that looks at the mean per capita GDP (or wealth / net income) excluding the top 1%? I'm curious what happens when you remove the super rich from these measurements. Median can be somewhat misleading as it only looks at those precisely in the middle.

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  11. If any one is actually interested in going in to the "nitty gritty," your really should read the Credit Suisse report. It is just a tad more in depth than this blog makes out.

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  12. I guess on terribly interesting thing that is not discussed, but becomes logically obvious, is the predictions of where countries may be in 20 or 50 years. It would seem that many of these predictions just wont come true. Personally I cannot imagine that with a rising sophistication and maturity to it's economy that China will do what is predicted and I actually see it imploding within the next 15 years.

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