Who is winning in Trump’s economy? In his State of the Union address the President rolled out an eye-catching statistic. He said the wealth held by the poorest half of American households increased three times as fast as the wealth held by the “1%” under his administration. Wealth means net worth. This is true according to Federal Reserve data. That is an irrefutable representation of reduction of income inequality. It is a dagger to the heart of the arguments of the socialist opposition party.
Wealth creation and accumulation
Net worth is the sum of the value of all assets (real estate, stocks, cash, etc.) less the sum of all liabilities (mortgages, loans, credit card balances, etc.). America’s bottom 50% start from a small base so even large moves in their fortunes do little to dent the overall distribution. The latest data available from the Fed comes from the end of September 2019. It observes the combined net worth of the least wealthy half of families was $1.67 trillion. That is out of total U.S. household wealth of $107 trillion. So the least wealthy half hold about 1.56% of the total.
Americans have seen a 17% jump in household wealth on average since Trump’s election. Most importantly the wealth at the bottom half has increased 54%. Trump calls this “… a blue collar boom…” Since December 2016 average household wealth has increased $15.8 trillion. His critics observe that even with a 54% increase in their household wealth the poorest half of American households still have just 1.6% of household net worth. Let’s think about that criticism.
In order to increase wealth one must have more current period income than current period expenses. If you have more coming in than you have going out you are building wealth. The inverse is also true. In order for people in the lower income brackets to build wealth the first thing which must happen is their income must rise faster than their expenses. What Trump is observing is that his administration has taken a two prong approach attacking the issue. Cutting taxes reduces the money going out of household budgets. Increasing incomes adds to the asset base either with savings, asset accumulation or reduced debt. Together the approach helps on both sides of net worth.
The bottom half of households saw their net worth rise by 54% under Trump. They grew from $1.08 trillion to $1.67 trillion. That’s compared to an 18% rise for the top 1%. The top 1% who control roughly a third of the total household wealth in America, or around $34.5 trillion.
Yes the people at the top got more in total dollars. That is not the point. The point is real steps are in effect that are reducing the gap. That is a claim the socialist opposition cannot make though they had an extended period to figure it out. Maybe they are right Trump isn’t all that smart. Maybe, he just cares more about the American people and he is working effectively to show it.
After the gains, this works out to average net worth of around $26,000 for the bottom half of households. Critics compare that to around $27 million for the ones at the top. They question here is does $26,000 mean more to a twenty something family of four that $27 million means to Mark Cuban or Mike Bloomberg? I suspect it does. There are two ways to narrow the gap. The destructive way is to confiscate from those at the top. That guarantees nothing to these on the bottom. The constructive way is to raise up the bottom. The approach is to build the base, build the base, build the base. All ships rise with the tide.
Wages for lower skilled jobs have of late been those for higher-skilled occupations. But it takes time for income to be saved and translate into wealth. Since Trump took office, households headed by college graduates captured 75% of the net worth gains. That’s around $11.88 trillion. They represent about a third of all households. This information comes from the Fed survey on which the data series is based. It confirms the effects of his policies is benefitting middle America.
Households headed by a high school graduate represent about a fourth of the total. They are a group on the front lines of Trump’s pledge to restore blue collar fortunes. Their wages are going up the fastest but they have lost $0.4 trillion in net worth during his time in office. Their income is not yet large enough. It needs to keep growing so they can reach the point where they become cash flow positive. They have to live below their means.
Baby boomers under Trump captured around $10 trillion of recent wealth gains. That’s about two-thirds of the total. Wealth accumulates with time. Older people tend to have a larger base to start with. Millennials are those born between 1981 and 1996. For them the last three years of booming markets have meant an extra half trillion dollars. This is spread across about 20.6% of households. GenX’ers are born between 1965 and 1980. They got about 21% of the gains, and made up roughly 26% of households. The pre-baby boom “Silent Generation” got 16% of the gains. Those gains are roughly in line with that group’s share of households.
Identity politics game
Critics play the identity politics game. They observe that analyzed by race, the data told a familiar story of inequality. About 84% of recent wealth gains accrued to the 64% of households that self-identified to the Fed as white. About 4.6% of wealth gains went to the 14.5% of households that identified as black, and 3.8% to the 10.1% of households that identified as Hispanic.
How sad is it that the increase of income and employment for minorities has been so disproportionately significant? The criticism is an exercise in statistical analysis. Figures lie and liars figure. The issue is one of expectations and culture.
We are a consumer society. That is, at its core, non-conservative. If we were a conservative society we would live within our means. We would eschew debt… but we don’t. Instead, we spend like drunken sailors personally and governmentally. This is a cultural trait which becomes dangerous when debt exceeds ability to repay.
The question in this election comes down to economics. Are we, voting Americans, going to embrace the Cloward and Piven approach to destroying America? Or, are we going to put ourselves, our families and our future together with America and modify what we are expecting, accepting and doing. We are at the fork in the road. Who is winning in Trump’s economy? Look around, isn’t the answer everyone?