I may not be an economics Ph.D., but I think I have spotted something (from a blogpost by Arnold Kling) that those more learned in that disciple have missed. In commenting on the Oxfam report on global wealth distribution, based on Credit Suisse data, which argues that the top 1 percent of the world’s richest people have half the wealth in the world, some (Branko Milanovic), top-rank economic bloggers (Felix Salmon) and an eponymous magazine (the Economist) spend much time and effort explaining why the many people in the United States and other advanced countries who have no positive net worth should not be counted as among the world’s poor, as Oxfam does.
Well, duh. Or as Felix Salmon, no right-winger, elegantly puts it, “Oxfam’s report is just as crap as the last version.” As he and the others point out, people with no positive net worth can live quite comfortably in advanced economies like the United States, off of their incomes or borrowing. Saying they are in the same economic place as very low-wage individuals in India or Bangladesh is nonsense. Wealth is not an accurate measure of current well-being.
But these sensible critiques leave out one important factor: a sizable percentage of these zero- or negative-net worth individuals are young. For even in an economically advanced nation you do not expect most young people to have positive net worths, that is, wealth. You might go so far as to say they shouldn’t have wealth, that they don’t know what to do with it. (If you spend much time listening to the personal concerns of very rich people, you may hear them sharing ideas on how to teach their children to handle their wealth intelligently.) Americans in their 20s typically have negative net worths, with credit card debt and college debt and nothing much in the way of home equity or savings yet.
Stop right there at that last word: Yet. Wealth accumulation and de-accumulation is a lifetime project. Almost all Americans age 21 to 29 have zero or negative net worth; most Americans age 55 to 64 have six- or seven-figure net worth. They spend their working lifetimes accumulating savings, building up home equity, making intelligent investments; then starting in their 60s they tend to spend some of that down.
So it’s not an indictment of a society or its economy to say that some large percentage of individuals at any given time have no wealth. The interesting questions how people at peak wealth accumulating age are doing, whether those younger are making headway in accumulating wealth and whether those older have enough wealth to spend down to meet their perceived needs. Intelligent analysis should — to use language economists might understand — disaggregate the data by age cohorts. Yet, every time the Federal Reserve releases its data on household wealth in America, we are treated to news stories about how most Americans have no wealth, even though most Americans age 55 to 64 do.
