Median Wealth Increases, but U.S. Still Stuck at 27th in World

The new Global Wealth Report and Global Wealth Databook from Credit Suisse were released last week. According to the Report (p. 3),

Global wealth has reached a new all-time high of USD 241 trillion, up 4.9% since last year and 68% since 2003, with the USA accounting for 72% of the latest increase. Average [mean] wealth per adult reached a new all-time high of USD 51,600, with wealth per adult in Switzerland returning to above USD 500,000.

For the United States, this represents an increase in mean wealth per adult of 11.4% from mid-2012 to mid-2013 (Databook, p. 92). Median wealth per adult increased even faster, from $38,786 to $44,911, or 15.8%, although we should recall that measurement of median wealth is less reliable than that for mean wealth.

Nonetheless, while these data represent improvement for the typical American, there was no change in our ranking relative to the rest of the world. While Kuwait and Cyprus fell below the U.S., Slovenia and, more surprisingly, Greece now have higher median wealth per adult. Thus, the United States remains only 27th in the world.

These data are significant for at least two reasons. First, they highlight the fact that while the United States has a higher gross domestic product per capita than all but four of the 26 countries ahead of it in median wealth per adult (Qatar, Luxembourg, Singapore, and Norway), the long-term trend of economic policies has clearly hurt the middle class. Inequality is a big part of the explanation here: mean wealth per adult in the U.S. is 6.7 times median wealth per adult, the highest ratio in the top 27. By contrast, in #1 Australia the mean-to-median ratio is only 1.8:1. In fact, this ratio is less than 3:1 for 19 of the 26 countries with higher median wealth per adult. In Slovenia, mean wealth per adult is less than 1.5 times median wealth per adult! (All figures calculated from Databook, Table 3-1.)

Second, these low levels of wealth contribute to the coming retirement crisis of the middle class. Americans have low levels of saving, while Social Security still looks vulnerable to the chopping block despite our already high level of elder poverty.

Here are the top 27 countries by median wealth per adult.

Country                                                      Median Wealth
                                                                   Per Adult

1.  Australia                                                    $219,505
2.  Luxembourg                                               $182,768
3.  Belgium                                                     $148,141
4.  France                                                        $141,850
5.  Italy                                                           $138,653
6.  United Kingdom                                         $111,524
7.  Japan                                                         $110,294
8.  Iceland                                                      $104,733
9.  Switzerland                                               $  95,916
10. Finland                                                     $  95,095
11. Norway                                                    $  92,859
12. Singapore                                                 $  90,466
13. Canada                                                     $  90,252
14. Netherlands                                              $  83,631
15. New Zealand                                            $  76,607
16. Ireland                                                      $  75,573
17. Spain                                                        $  63,306
18. Qatar                                                        $  58,237
19. Denmark                                                  $  57,675
20. Austria                                                     $  57,450
21. Greece                                                      $  53,937
22. Taiwan                                                      $  53,336
23. Sweden                                                     $  52,677
24. United Arab Emirates                                 $  51,882
25. Germany                                                   $  49,370
26. Slovenia                                                    $  44,932
27. United States                                            $  44,911

Source: Credit Suisse Global Wealth Databook, Table 3-1

Cross-posted at Angry Bear.

How High Does Senior Poverty Have to Go?

It's official: President Obama has proposed cutting Social Security by replacing the program's current inflation adjustment with the stingier "chained" Consumer Price Index. As I've discussed before, this risks undoing all the progress made against senior poverty since the passage of Medicare and Medicaid in 1965. 25% of seniors were poor according to official poverty line in 1968, compared to just 9.4% in 2006. Note, however, that the Supplemental Poverty Measure, which includes things like out of pocket health care expenses which hit seniors disproportionately, already shows a 16.1% rate by 2009. And our senior poverty rate, measured by the international standard of 50% of median income, is already 25%, much higher than most developed countries, more than three times Sweden's rate and over four times as high as Canada.

Why is Obama doing this? We just rejected the candidate who wanted to cut Social Security and Medicare. Perhaps, as Krugman (link above) suggests, he chasing the fantasy of "being the adult in the room," but this is a losing proposition. As Brian Beutler points out:

Just like that, Chained CPI morphs from a thing President Obama is willing to offer Republicans into a thing Republicans dismiss as a “shocking attack on seniors.”

We've seen this game before. The Heritage Foundation's health care plan became "death panels" when President Obama endorsed it.  And, as Beutler's title makes clear, we have plenty of examples of the President negotiating with himself to bad effect, most notably in the 2011 debt ceiling battle.

If this cut really happens, Social Security benefits will steadily fall in true inflation-adjusted terms due to the magic of compounding. Moreover, with 49% of the workforce having no retirement plan at work and another 31% with only a grossly inadequate 401(k), the cuts will worsen the coming retirement crisis. The only question will then be: how high will senior poverty have to go before we do something about it?

Cross-posted at Angry Bear.

$6.6 Trillion Retirement Savings Shortfall Shows 401(k)'s No Replacement for Pensions

Last week the Washington Post ran a story on the weaknesses of 401(k) retirement accounts, focusing on the the fact that 1/4 of Americans with 401(k)'s have used them to meet current income needs. Among people in their forties, the share rises to 1/3,  an astounding figure considering how close this group is to retirement. In the wake of the Great Recession and continuing job market problems, it is perhaps not surprising that 28% of 401(k) account holders presently have loans against their accounts.

As the Post delicately puts it,

Many employers have embraced 401(k) and other defined-contribution accounts as a way of helping workers save for retirement while relieving themselves of the financial risks that come with managing a traditional pension plan. In theory, 401(k) accounts are better suited to an economy in which workers are changing jobs more frequently than ever because the accounts can be rolled over from previous employers.

A more accurate way of saying this would be that employers have embraced 401(k) plans because they are less expensive than providing pensions, thereby "cut(ting) overall employee compensation," and that 401(k) plans don't take into account the stagnation of real wages, points well made by commenter "Sean2020."

Moreover, as I reported before, 49% of private sector worker have neither a 401(k) or a defined benefit pension plan. Thus, they have no supplement to their eventual Social Security benefits unless they are able to save outside of a 401(k).

And they aren't saving. At least, they're aren't saving nearly enough to maintain their standard of living after retirement. As a report from the Senate's Health, Education, Labor, and Pension (HELP) committee states, there is a  $6.6 trillion gap (methodology here) between what people need to maintain their current standard of living and what they've actually saved for retirement. This is equal to the combined assets of defined benefit pensions and 401(k) type plans, more than total state/local/federal government retirement plans, and more than twice as much as the Social Security Trust Fund. There's a reason I've been using the word "crisis"!

Total Assets

Social Security Trust Fund      $2.7 trillion (12/31/2012)
Defined benefit pensions         $2.3 trillion (9/30/2012)
Defined contribution 401(k)    $4.3 trillion (9/30/2012)
State/local gov't employee      $3.1 trillion (9/30/2012)
Federal employee retirement  $1.5 trillion (9/30/2012)
IRA's                                    $4.9 trillion (6/30/2011)


Sources: Social Security Administration; Federal Reserve, tables L-116, L-117, and L-118 (financial assets only), for DB, DC, and government employee programs; Investment Company Institute for IRAs

This gigantic hole shows that the current model, based on 401(k)'s rather than true pensions, is not working. In a future post I will discuss ways to fix the crisis.

Poll Results: 1 in 4 Never Expects to be Able to Afford to Retire

Thanks to everyone who answered the poll on when you have or expect to be able to retire. The biggest takeaway is that 1 in 4 never expect to be able to retire.

Full results:

Retire before 65: 20%
At 65: 20%
At 70: 20%
At 75: 4%
Over 75: 8%
Never: 25%

(Total does not equal 100 due to rounding.)

This underscores just how dire our retirement crisis will be. As I explained in my last post, the decline in defined benefit pensions from 38% of private sector workers in 1980 to 20% in 2008 means that Generation X will be particularly vulnerable to poverty in retirement, yet Republicans want to kill Social Security and Medicare. We see their efforts as well to eliminate defined benefit pensions for public sector workers.

Baby boomers, especially younger ones, will not be exempt from the crisis. But Generation X and beyond will be the hardest hit. More on the retirement crisis soon.

Basics: U.S. One of Worst Rich Countries for Child Poverty

Pat Garofolo of Think Progress reports on new data published by UNICEF on child poverty among rich countries. The study covered all 27 European Union members, plus Australia, Canada, Iceland, Japan, New Zealand, Norway, Switzerland, and the United States. Of the 35 countries studied, the U.S. ranks second-worst in the percentage of children living in relative poverty (half of median GDP per capita; see further below), with 23.1% below this poverty level, above only Romania at 25.5%. Romania is the second poorest member of the EU and not an OECD member country. The table below sums up the results (most data are for 2009):


Source: UNICEF via Think Progress

As the report says:

Previous reports in this series have shown that failure to protect children from poverty is one of the most costly mistakes a society can make....The economic argument, in anything but the shortest term, is therefore heavily on the side of protecting children from poverty. Even more important is the argument in principle. Because children have only one opportunity to develop normally in mind and body, the commitment to protection from poverty must be upheld in good times and in bad. A society that fails to maintain that commitment, even in difficult economic times, is a society that is failing its most vulnerable citizens and storing up intractable social and economic problems for the years immediately ahead.

Some people object to the use of this relative poverty measure, which is the OECD standard. Certainly, for the poorer EU Member States, their absolute levels of child deprivation are worse than that in the U.S. because their income per capita is so much lower. For example, Romania's GDP per capita is $12,300 at purchasing power parity (PPP) compared to $48,100 for the United States. The UNICEF report actually has an absolute measure of child deprivation based on lack of access to two or more of 14 resources it estimates are essential for children in an industrialized society (including everything from three meals a day to a quiet place to do homework to an Internet connection). 72.6% of Romania's children and 56.6% of Bulgaria's are deprived by this standard, but only four more EU members exceed 20% by this measure. (Comparable data were not available for the U.S.)

But we in America should not get too excited by this fact. If we compare poverty across the major OECD economies, we find that the rankings change very little whether we use the OECD's relative measure or an absolute measure. We know this because for a time the UN Development Programme's Human Development Report listed data for an absolute poverty threshold of $11/day in 1994-5, which comes to $16,060 per year for four people, little different than the Census Bureau's figure of $15,569 for a family of four in 1995. So, measuring major European economies plus Australia and Canada, which generally have a lower GDP per capita at PPP than the U.S. does, against the U.S. poverty line, what do we find? From the 2006 Human Development Report, , page 295, here are all the "high human development" countries with poverty data using both the relative and absolute scales (listed in order of their Human Development Index score):

Country          50% of Median Income Rate          $11 a Day Poverty Rate
                                   1994-2002                                1994-95

Norway                          6.4%                                         4.3%
Australia                        14.3%                                       17.6%
Sweden                           6.5%                                         6.3%
Canada                          11.4%                                         7.4%
United States                  17.0%                                      13.6%
Netherlands                      7.3%                                        7.1%
Finland                             5.4%                                         4.8%
Luxembourg                     6.0%                                         0.3%
France                             8.0%                                         9.9%
United Kingdom             12.4%                                       15.7%
Germany                          8.3%                                         7.3%

As we can see, the shift to the absolute rate improves the U.S. rank from only 11th (last) to 9th. As long as restrict ourselves to the richest of rich countries, it makes little difference whether we use a relative or absolute measure of poverty. Either way, the U.S. does very poorly. And because it does poorly in overall poverty, it does poorly in child poverty as well.

The U.S., with high levels of child poverty, is therefore setting itself up for permanently lower economic productivity, higher costs in social services and incarceration, and so forth. This is a powerful argument against cuts to safety net programs and to education. The only question is whether we can overcome the forces currently promoting such policies.

ACA Works for Young Adults as Planned; Percentage of Uninsured Hispanics also Falls

On Tuesday, the Census Bureau released its annual report on income, poverty, and health insurance for the year 2010. Based on surveys at approximately 100,000 addresses conducted primarily in March 2011, the Current Population Survey Annual Social and Economic Supplement found that the number of uninsured in the U.S. rose by 919,000, from 49.0 to 49.9 million (see Table 8). (Note that this reflects a downward revision in the estimate for uninsured in 2009.) There were two bright spots in the data, however, for young adults and Hispanics.

On September 23, 2010, one of the most significant early provisions of the Affordable Care Act (ACA) went into effect, allowing young adults to stay on their parents' insurance until they turned 26 years old. The Census Bureau report shows that this provision was used by a substantial number of people. Since this provision affected 19-25 year olds, the report broke out the data separately for this age group: 393,000 fewer of them were uninsured in 2010 than in 2009, with the percentage uninsured falling from 31.4% to 29.7%; both of these changes were statistically significant. This shows that the Affordable Care Act worked precisely as planned for young adults.

In addition, the percentage of uninsured Hispanics fell by a statistically significant 0.9 percentage points, from 31.6% to 30.7%, between 2009 and 2010. While the fall in the number uninsured was small (110,000) and statistically not significant, when combined with an increase in the Hispanic population of over 1 million, the percentage change was substantial. The report does not speculate on the reason more Hispanics were insured. Indeed, despite the fact that the poverty rate increased among Hispanics by 1.3 percentage points (Table 4), the number of Hispanics insured under every category of insurance, private and public, increased between 2009 and 2010. For example, almost 900,000 more Hispanics had insurance through their employers, even as non-Hispanic whites had a drop of 1.9 million receiving insurance through their employers (Table C-2).

Despite this improvement, Hispanics were by far the ethnic group most likely to suffer being uninsured. Their rate of 30.7% uninsured compares unfavorably with blacks (20.8%), Asians (18.1%), and non-Hispanic whites (11.7%).

Given the fact that the uninsurance rate among 19-25 year olds is still almost 30%, there would seem to be a good possibility that we will see even more improvement here after this fall's annual enrollment periods, thanks to the ACA.

Heritage Tries to Mislead Us on How Swell Poverty Is

A little late getting to this (I've had unexpected travel), but Matt Yglesias makes an important point I wanted to expand upon. That is, just because you can afford a number of modern conveniences doesn't mean you're not poor. Similarly, people don't go bankrupt because they can't afford a TV, but because of medical bills (62% in 2007) or job loss.

Yglesias: The Heritage Foundation is out with the latest version of its annual poor people aren't poor because electronics are cheap report.....A serious person would follow this up with a discussion of relative prices. Over the past 50 years, televisions have gotten a lot cheaper and college has gotten a lot more expensive. Consequently, even a low income person can reliably obtain a level of television-based entertainment that would blow the mind of a millionaire from 1961. At the same time, if you’re looking to live in a safe neighborhood with good public schools in a metropolitan area with decent job opportunities you’re going to find that this is quite expensive. Health care has become incredibly expensive.

How much more expensive? For higher education costs, the College Board presents this table of how far above the general inflation rate college costs have grown. Remember, these are tacked on top of the general inflation rate. Thus, over the 30-year period public four-year universities have gotten 3 1/2 times as expensive in real (inflation-adjusted) terms, for example.

	Tuition and Fees				Tuition and Fees and Room and Board
	Private Nonprofit Four-Year	Public Four-Year	Public Two-Year		Private Nonprofit Four-Year	Public Four-Year
1980-81 to 1990-91	5.1%	4.2%	3.9%		4.3%	2.3%
1990-91 to 2000-01	2.6%	3.3%	3.2%		2.2%	2.3%
2000-01 to 2010-11	3.0%	5.6%	2.7%		2.8%	4.2%

Average annual rate of growth of published prices in inflation-adjusted dollars over a 10-year period. For example, from 2000-01 to 2010-11, average published tuition and fees at private four-year colleges rose by an average of 3.0% per year beyond increases in the Consumer Price Index.

View Notes and Sources

Let's now compare overall inflation with health care inflation (inflation tables are at: http://data.bls.gov/cgi-bin/surveymost?cu). The CPI-U (consumer price index – urban) for all items was 225.722 in June 2011, compared to 37.8 in January 1970 (1982-84=100), meaning that urban prices were 5.97 times as high as 41 years earlier. By contrast, the CPI-U for medical care rose to more than 12 times as high over the same period, from 32.7 to 399.552. No wonder health care costs have caused problems for so many people.

To sum up, the economic problems facing poor or middle-class people aren't related to spending on frivolities, which are largely low-cost. Instead, they come from what one's health insurance company will or won't pay for, whether you have a job or not, and whether you can afford the housing and education to give your children a better life. The Heritage folks, while giddily pointing out that the poor in America see doctors, also support deep cuts (“entitlement reform”) to the programs that make that possible in the first place. Have they no shame?