The Median Wealth of Nations  

Posted by Big Gav

Bill Bonner at The Daily Reckoning has a look at the striking disparity between average wealth and median wealth in the US - The Real Wealth of US Households by the Numbers.

But despite all this backdrop of chicanery and tomfoolery, the real USA is in deep trouble. The number of people living with the help of US government food handouts has risen to 46 million ‘ a new record.

And figures from Credit Suisse’s World Wealth Report show that the typical American is a lot poorer than generally believed. The report compares average wealth to the median wealth. For the benefit of Dear Readers who have forgotten the distinction, average is what you get when you add all the wealth together and divide by the number of people. Put in a few super-billionaires and everyone looks rich. The median, on the other hand, is what you get when you separate the people into two groups...those above and those below. At the center is the “median"...or what we usually refer to as the “typical" American.

In Britain, for example, the average wealth is $258,000. Not bad. But it’s not what most people have. It’s just what you get when you average all those rich people ‘ with their very expensive houses in London ‘ along with everyone else. Few people in Britain actually have $258,000 net worth.

The median net worth is not even half that amount ‘ $121,000. That’s what the typical fellow has. And even that amount depends heavily on real estate prices that have still not come down in Britain.

But get this. In the US, the average wealth figure is a little less than in Britain ‘ $248,000. But the median figure ‘ what most people actually have ‘ is much less, only $53,000.

What this means, says our Bonner Family Office chief economist, Rob Marstrand, is that “wealth in America is heavily skewed to the rich, with a lot of adults with very little net worth."

Compared to the typical Japanese or European, the typical American is only half as rich. Half the people in the US have less than $53,000 net worth. You can imagine what the bottom 20% have.

This is a devastating and grim insight. It explains why so much of America seems, well, so poor. Because it is poor. People don’t have any money. They dress poorly. Eat poorly. Live poorly.

Compared to Britain and Europe, much of the difference can be explained by the housing bubble, and subsequent housing crash in America. If we remember correctly, the US housing stock was valued at about $20 trillion in ’07. It lost 33% of its value, putting a quarter of mortgaged houses underwater and wiping out about $7 trillion of “wealth."

This explains why there are so many reports of people living in motels...and, according to a recent CNBC automobiles. Yes, families have taken to living in trucks and cars.

Crikey also includes this data in a recent article, noting the gulf in economic performance (and income growth) between Australia and other OECD nations - Australian exceptionalism on an eight-lane highway. I’d always wondered why the typical American seems so poor in comparison with the ordinary Australian or European given the country is so rich - but I never would have guessed the average (median) Australian is 4 times better off...
We’ll often laugh at the cognitive dissonance displayed by our American cousins when they start banging on about American exceptionalism — waxing lyrical about the assumed ascendancy of their national exploits while they’re forced to take out a second mortgage to pay for a run-of-the-mill medical procedure. That talk of exceptionalism has become little more than an exceptional disregard for the truth of their own comparative circumstances.

But in truth, we both share that common ignorance  — we share a common state of denial about the hard realities of our own accomplishments compared to those of the rest of the world. While the Americans so often manifest it as a belief that they and they alone are the global benchmark for all human achievement, we simply refuse to acknowledge our own affluence and privilege — denialists of own hard-won triumphs, often hysterically so.

Never before has there been a nation so completely oblivious to not just their own successes, but the sheer enormity of them, than Australia today.

In some respects, we have a long-standing cultural disposition towards playing down any national accomplishment not achieved on a sporting field — one of the more bizarre national psychopathologies in the global pantheon of odd cultural behaviours — but to such an extreme have we taken this, we are no longer capable of seeing an honest reflection of ourselves in the mirror.

We see instead a distorted, self-absorbed cliché of ourselves bordering on parody — struggling victims of tough social and economic circumstances that are not just entirely fictional, but comically separated from the reality of the world around us.

So preoccupied have we become with our own imagined hardships, so oblivious are we to the reality of our privileged circumstances, that when households earning more than $150,000 a year complain about having government welfare payments scaled back, many of us treat it as a legitimate grievance.

Somewhere along the highway to prosperity — and an eight-lane highway it has been — far too many of us somehow managed to confuse cost of lifestyle with cost of living. We managed to confuse government assistance as a means to enable the less well off to achieve a better standard of living and greater opportunity, with government assistance being a God-given right to fund the self indulgences of aspirational lifestyle choice beyond our income means. Too many of us have demanded our dreams be handed to us on a plate, and if our income couldn’t provide for them, we demanded that government should give us handouts to make up the difference.
So let us take a hard look at our economic reality.

Over the medium term, our broader economic performance has been nothing short of astonishing. Before the resources boom was even a twinkle in the eye of Chinese poverty alleviation, our performance was world beating — that is worth keeping in your thought orbit. Big Dirt has a bad habit of propagandising about its own contributions and the Australian public has a bad habit of believing it when it comes to our own national development of late.

Imagine if, in 1985, all OECD economies had exactly 100 units of GDP each. If we then tracked the growth of that GDP (using OECD data) over time with the actual growth rates achieved during that period (creating a basic index) this is how economies changed:

Only Turkey, Israel, Ireland and Korea have experienced more growth — with Turkey and Korea pursuing the change from developing to developed status, Israel partially so as well and Ireland recovering from the economic lethargy of civil war, we are the highest growing country that can be remotely called a developed country with no unusual circumstances. Putting this into context, let’s trace that growth over the last 25 odd years with some of the countries we are often compared to.

… “What about the distribution of that growth", I hear you ask. “The poor missed out" you might also be tempted to add.

Using data from the freshly minted OECD report on international comparisons of income distribution and inequality, where the average income growth per year was measured among countries between the mid 1980’s and the late 2000’s, what we find is that Australia left just about everyone else for dead. Not just at the average, or total household income level, but also with the size of the income growth among the poorest 10% of our households *and* the richest 10% of our households.

First up, total population income growth in blue, bottom decile income growth (the poorest 10% of households) in red and the top decile income growth (the wealthiest 10%) in green for all OECD countries.

It’s interesting to note that the only countries where the poorest 10% of households experienced faster income growth than Australia was 4 of the five PIIGS countries – the current basket cases of Europe. Something might be said there about false growth and swings and roundabouts.

Looking at how our growth here compared to the usual suspects:

It is true that the income of the wealthiest 10% of households in Australia grew faster than the income of the poorest 10% of households – the income of Australia’s wealthiest 10% of households grew faster than any other cohort in the OECD. But it’s also true that our poorest 10% of households experienced faster income growth than any country other than Spain and Ireland (who are now quickly reversing that growth with their economic woes) , and faster income growth than the top 10% of wealthiest households in *every other country*.

The income of our poor grew faster than the income of everyone else’s rich. Just chew on that reality for a bit. Let it roll around in your head. ...

We have the highest minimum wages in the OECD. Worth noting too that despite the incessant whinging from the usual business lobbies in Australia, it hasn’t done our economic activity any harm. Now if we compare the ratio of these minimum wages to the average wage for each country, giving us a simple glance at the distribution of wages for each country (which the OECD also fortuitously provides, saving us time), what we find is that Australia, again, sits on top.

Our minimum wage is a lot closer to our average wage than comparable nations.
So our economy has grown faster than nearly all others, our household income has grown faster than nearly all others (including our poor having income growth higher than everyone else’s rich) and we have the highest minimum wages in the world. But wait, there’s more!

“It’s unsustainable" I hear the skeptics say – “it’s fuelled by debt!"
Well, let’s have a quick look at government debt as a percentage of GDP. Here’s all OECD countries – I’ve thoughtfully pointed out Australia in the chart because it’s easy to miss:

… Now let’s talk about wealth – not income, which we’ve mostly looked at so far, but wealth – the value of our accumulated assets – housing, super, savings etc etc. Here, we’re going to use the The Credit Suisse 2011 Global Wealth Report.

Not only did this find that Australia has the second highest average wealth in the world at $397,000 US dollars per adult (with Switzerland ranked first), but we have the highest median wealth in the world – the wealth of the middleth adult in Australia – coming in at $222,000 US dollars.

The report also gives a number of stats among selected countries which is worth taking a good, long look at.

First up, mean and median wealth per adult ...


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