$55 TRILLION PAUPERHOOD:

Net Worth--and the Dollar--Rise Again (Michael Mandel, 6/12/06, Business Week)

The amount of (pessimistic) nonsense that is written about the U.S. economy is truly extraordinary. The usual rap is that the U.S. is borrowing its way into oblivion--and eventually we are going to get our come-uppance when the dollar plunges and no one wants to lend to us anymore.

But oblivion is looking pretty good these days. Despite all the pessimism and all the borrowing, the country's net worth continues to rise, according to the latest figures from the Federal Reserve!
[...]

Let's look at a chart first. I calculate a concept that I call "real adjusted net worth per capita". That's equal to household net worth, minus government net debt, adjusted for inflation, and divided by the size of the population.

Here's what the chart looks like.

Real adjusted net worth per capita rose to $142,000 in the first quarter of 2006 (in 2000 dollars). That's up 6% over a year earlier, and higher than the previous peak.

You can see from the chart that there is a long-term upward trend, distorted by the late 1990s boom. So even with all of our borrowing, our net worth has been increasing.

U.S.: Why The Slowdown Won't Become A Slump: Household finances are strong and should continue to shore up demand (James C. Cooper, 6/26/06, Business Week)

Take a look at the Federal Reserve's latest data on the balance sheets of households and corporations. Over the past year household net worth, which is the net of all assets minus liabilities, increased by $4.9 trillion, to a record $53.8 trillion. The boost reflected more than just higher home prices, with gains in financial assets -- from bank deposits to stocks and bonds -- contributing the lion's share. Those increases are partly why household spending has been so resilient over the past year in the face of surging gasoline prices and rising interest rates.

Real Wages Fail to Match a Rise in Productivity (STEVEN GREENHOUSE and DAVID LEONHARDT, 8/28/06, NY Times)

With the economy beginning to slow, the current expansion has a chance to become the first sustained period of economic growth since World War II that fails to offer a prolonged increase in real wages for most workers. [...]

[H]ealth care is far more expensive than it was a decade ago, causing companies to spend more on benefits at the expense of wages. [...]

[P]olls show that Americans are less dissatisfied with the economy than they were in the early 1980’s or early 90’s. Rising house and stock values have lifted the net worth of many families over the last few years, and interest rates remain fairly low. [...]

Total employee compensation — wages plus benefits — has fared a little better. Its share was briefly lower than its current level of 56.1 percent in the mid-1990’s and otherwise has not been so low since 1966. [...]

Average family income, adjusted for inflation, has continued to advance at a good clip, a fact Mr. Bush has cited when speaking about the economy.

http://www.csmonitor.com/2006/0830/p02s02-usec.html>At last, buoyant economy lifts incomes: After dropping for five years, median income of US households rises 1.1 percent, the Census Bureau reported Tuesday. (Alexandra Marks, 8/30/06, The Christian Science Monitor)

The nation's real median income was up 1.1 percent from 2004 to 2005, reaching more than $46,000, the US Census Bureau reported Tuesday. That's about $500 more than last year.

At the same time, the poverty rate has stabilized, after ticking upward for several years.

America: More Like Sweden Than You Thought (Tim Worstall, 28 Aug 2006, Tech Central Station)

One of the joys of my working life is that I get to read papers like "The State of Working America" from the Economic Policy Institute. [...]

To start with, they make some adjustments to the usual measures of the income of a nation, the GDP, by adjusting for different price levels. This gives us the so called Purchasing Power Parity numbers (PPP) and the USA is set as being 100 on the scale. Only one of the advanced industrial nations has a greater income per capita, Norway, at 105. Given that Norway gets some 20% of its GDP from pumping oil and gas out from beneath the North Sea and is, thus, almost a petro-state, it would be fair to say that the USA is, in fact, the large country with the highest income per head in the world without depleting its natural capital. Good, so far something we knew already.

We're also told on page 6 that if we look at the average of the countries studied without the USA and compare that to the USA's performance, that income growth rates are higher in the USA. 1.8% to 1.9% in 1989-2000, and 1.1% to 1.3% in 2000-2004. So not only richer but getting even richer faster, as well.

Furthermore:

"The U.S. average from 2000 to 2005 was 1.7%, well above the OECD average of 0.7% in real compensation growth. Four countries fared better than the United States, most notably Norway with 2.3% growth. Note also that Germany had negative real compensation growth from 2000-05."

Things are actually looking pretty good for the US economy, then -- wealthier to start with, getting richer faster and productivity growth is also highest in the USA, meaning that this trend is only likely to continue. Looking at all of that it's really rather difficult to see that there's anything wrong with the way things are being managed (or not). [...]

In the USA the poor get 39% of the US median income and in Finland (and Sweden) the poor get 38% of the US median income. It's not worth quibbling over 1% so let's take it as read that the poor in America have exactly the same standard of living as the poor in Finland (and Sweden). Which is really a rather revealing number don't you think? All those punitive tax rates, all that redistribution, that blessed egalitarianism, the flatter distribution of income, leads to a change in the living standards of the poor of precisely ... nothing.

No matter how hard they try, the Times and Democrats aren't going to convince many folks they have it rough these days.

MORE:
Bubbling Crude? (Robert J. Samuelson, July 26, 2006, Newsweek)

Despite all the griping, gasoline is still affordable. Even at $3 a gallon, it costs Americans only about 4 percent of their disposable income, reports economist Nigel Gault of Global Insight. The same is true globally. At $70 a barrel, global crude sales would total about $2.2 trillion annually; that's still a tiny share of the $50 trillion world economy.

Setting aside how insignificant energy costs remain even before the bubble bursts, it's pretty amusing that the entire world economy doesn't generate as much wealth in a year as we have socked away.

Meanwhile, this is nearly dispositive, Catering to Ignorance (Russell Roberts, 8/28/06, Cafe Hayek)

Posted by Orrin Judd at August 28, 2006 1:11 PM