If you spent any time today online, you couldn’t miss the headlines. But just in case you somehow managed to miss ’em anyway, here’s a brief sample:
Washington Post: Americans saw wealth plummet 40 percent from 2007 to 2010
Los Angeles Times: Average U.S. family’s wealth plunged 40% in recession, Fed says
US News & World Report: Recession Helped Cut Median Net Worth by 40 Percent
Wall Street Journal: Family Net Worth Fell Almost 40% Between 2007-2010
Seattle Times: Recession wiped out 20 years of wealth you built, Fed says
Yes, some of the articles were written by the same news agencies, but I’m sharing these links strictly for the headlines – for now.
Of course, the report was barely off the press before it became a political issue. Take it away, Mitt:
A stunning report that showed household wealth was so sapped by the recession that families’ net worth got set back 20 years quickly became a campaign football — as Mitt Romney pointed to the numbers in arguing President Obama is out of touch.
“The American people are facing really tough circumstances. They’re looking at how they’re going to pay for retirement,” Romney told Fox News on Tuesday. “The president needs to go out and talk to people, not just do fundraisers.”
The Republican presidential candidate was referring to a new Federal Reserve report that showed the 2010 median family net worth was no more than it had been in 1992. The Fed further reported that median worth fell “dramatically” between 2007 and 2010 — by nearly 39 percent.
Now, I’m no economist, but since I feel fairly confident that just about every news agency got this story wrong, some bullet holes:
1. The headlines are terribly misleading and alarmist.
What they share is a mention of a 40% recession-related decline in wealth.
What many fail to mention is that the report ran only from 2007-2010. By leaving out the relevant dates, the headlines easily convey the impression that 40% of that wealth has been wiped from the beginning of the recession until roughly now. That’s not the case. From that same FOX News article:
A separate survey the Fed released last week showed that total family net worth climbed 4.7 percent in the January-March quarter to $62.9 trillion, about 28 percent above its recession low. The increase was fueled by stock market gains.
Those gains put net worth about 5 percent below its pre-recession peak of $66 trillion.
I don’t know why I keep pointing out when this happens. This always happens.
2. These statistics make for a poor indictment of Obama’s record.
Using the Dow Jones Industrial Average as an (admittedly) rough proxy for American wealth, it’s clear that the market bottomed out in the months immediately after the president took office, and has been on a haltingly upward climb since:
Small comfort for anyone who sold at the bottom of the market, but we’re not talking about winners and losers – we’re talking median wealth.
Considering how deep the bottom of that market was, the extent of the recovery under Obama is actually rather remarkable. The red arrow indicates the difference between the DJI when Bush took office and when he left, and the green indicates the difference between when Obama took office and the present:
Both arrows represent rough estimates; I included them in case you’d prefer not to look too closely at a graph.
3. The wealth we’re talking about never really existed, so it was never really lost.
A crash of housing prices directly accounted for three-quarters of the 2007-2010 loss, the Fed report said.
The median value of Americans’ stake in their homes fell 42 percent between 2007 and 2010, to $55,000, according to the Fed.
Median family income fell 8 percent to $45,800 in 2010 from $49,600 in 2007, the report said, adjusting all figures for inflation.
This might come off as cold-hearted, but it was called the housing ‘bubble’ for a reason. The value was built on a house of cards, and treating its disappearance like it was any currently-elected politician’s fault – much less turning it into a ‘campaign football’ – is disingenuous.
Yes, the tremendous decrease in perceived wealth helps explain why people spend less and consumer confidence is down – but nothing more.
4. Focusing on the overall median wealth misses a very interesting statistic buried in the report.
Something tells me Mitt Romney is going to try to avoid this one.
The report breaks down the median wealth for each quintile of Family Net Worth (with the top 20 percentile broken in half again). In case you can’t guess what happened, I turned the information into graphical format [note: graph titles denote the relevant percentiles, and the y-axes are in denominations of $1,000 – that said, pay less attention to the absolute numbers and more to the trends]:
You may have noticed that five of six wealth distribution brackets went in one direction over the relevant three-year period – for an overall decline of 40%, in case you didn’t know – while the highest bracket headed in the other direction, every three years, over the entire decade
Mitt Romney’s recently-released financial report shows he is worth $250 million. I’m not going to argue that any of this means Barack Obama is somehow ‘in touch’, but Mitt is one of the last people who can make the accusation that anything in this Federal Reserve report means he’s not.
Somehow, these numbers didn’t make the headlines.