October 24, 2022
THE STAGGERING ACHIEVEMENT:
Why Isn't Inflation Falling? (Ben Carlson, 10/21/22, Wealth of Common Sense)
(1) Everyone got wealthier during the pandemic.OK, maybe not everyone but the royal we is far wealthier. Collectively, U.S. households got much richer during the pandemic.The net worth of U.S. households coming into 2020 was just shy of $110 trillion.By the end of the second quarter net worth was up to more than $135 trillion, after hitting an all-time high of nearly $142 trillion coming into this year.From the end of the first quarter in 2020 through the first quarter of 2022, the net worth of Americans increased by 37%, by far the biggest increase on record since the Fed began tracking this data in 1989.That was from the Covid low through the post-pandemic high but even if we start from pre-pandemic levels, the 30% increase is by far the largest 2 year increase in net worth on record before this period.And for once, it's not just the top 10% or the top 1% that's benefitted.Take a look at the change in net worth of the bottom 50% over time:From 1989 to the pre-GFC 2007 peak, the net worth of the bottom 50% went from $773 billion to $1.4 trillion.So in a little less than 20 years, the net worth of this group rose by more than $620 billion.The bottom 50% was devasted by the financial crisis and housing crash with the total net worth of this group declining to $190 billion.By the end of 2019, it had come all the way back and then some, up to almost $2 trillion.It's now $4.4 trillion.So the net worth of the bottom 50% has increased by $2.4 trillion since the start of the pandemic in early 2020, meaning it has more than doubled in less than 3 years.This group of households tends to spend a greater percentage of their income than those with more financial assets so it shouldn't come as a surprise that people continue to spend in the face of higher inflation.The U.S. consumer has likely never been more prepared for high inflation (and a potential recession) than they were coming into this period of higher prices.No one likes inflation but we love to spend money in this country. So most people have simply decided to complain but still spend through the pain of higher prices.
As historians cast their glance back across human history, the fact that this pandemic was the only one where people got richer will be one of the most extraordinary anomalies they find. Of course, the failure to tax consumption led to people spending wealth they could have invested.
Posted by Orrin Judd at October 24, 2022 12:00 AM