Yves here. This Real News Network interview on the results of the latest Survey of Consumer Finances paint a picture familiar to most readers: the rich are becoming richer while those with less wealth are falling further and further behind.
David Rosnick of CEPR makes an important observation in passing. The decline in the position of typical households is even worse the the Consumer Finances survey indicates. In 1989, many workers had pensions. Far fewer do now. The value of pensions isn’t included in these surveys due to the difficulty of determining what they are worth on a current basis. But they clearly are significant assets that relatively few working age people have now.
SHARMINI PERIES, EXEC. PRODUCER, TRNN: Welcome to The Real News Network. I’m Sharmini Peries, coming to you from Baltimore.
Household wealth has considerably fallen for a majority of Americans. A new report from the Center for Economic Policy Research by David Rosnick and Dean Baker shows that most households now have net less wealth than they did in 1989. The report, titled The Wealth of Households: An Analysis of the 2013 Survey of Consumer Finances, shows little or no gain for the majority of Americans over the last 25 years, even in the years since the end of the recession.
Now joining us from Amherst, Massachusetts, is one of the authors of the report, David Rosnick. David is an economist at the Center for Economic Policy Research in Washington, D.C.
David, welcome to The Real News Network.
DAVID ROSNICK, ECONOMIST, CEPR: Thank you for having me.
PERIES: David, just quickly explain to us what is the Consumer Finance Survey. I know it’s an important survey for economists, but why is it important to ordinary people? Why is it important to us?
ROSNICK: So, every three years, the Federal Reserve interviews a number of households to get an idea of what their finances are like, want to know, do they have a lot of wealth, how much are their houseOs worth, how much they owe on their mortgages, how much they have in the bank account, how much stocks do wealthy people on. This gives us an idea of their situations, whether they’re going to be prepared for retirement. And we can see things like the effect of the housing and stock bubbles on people’s wealth, whether they’ve been preparing for eventual downfalls, how they’ve reacted to various economic circumstances, how they’re looking to the long term. So it’s a very useful survey in terms of finding out how households are prepared and what the distribution of wealth is like.
PERIES: So your report is an analysis of the report. And what are your key findings?
ROSNICK: So, largely over the last 24 years there’s been a considerable increase in wealth on average, but it’s been very maldistributed. Households in the bottom half of the distribution have actually seen their wealth fall, but the people at the very top have actually done very well. And so that means that a lot of people who are nearing retirement at this point in time are actually not well prepared at all for retirement and are going to be very dependent on Social Security in order to make it through their retirement years.
PERIES: So, David, address the gap. You said there’s a great gap between those that are very wealthy and those that are not. Has this gap widened over this period?
ROSNICK: It absolutely has. As, say, the top 5 percent in wealth, the average wealth for people in the top 5 percent is about 66 percent higher in 2013, the last survey that was completed, compared to 1989. By comparison, for the bottom 20 percent, their wealth has actually fallen 420 percent. They basically had very little to start with, and now they have less than little.
PERIES: So the poorer is getting poorer and the richer is getting extremely richer.
ROSNICK: Very much so.
PERIES: Okay. And so what does this tell us about us in the middle?
ROSNICK: Us in the middle? There’s been very little progress. There’s been a lot of–productivity growth has been considerable over this period of time. You would think that people who are near retirement actually should have a fair bit more wealth, they should be better prepared for retirement. But in actuality, the middle quintile of those that are near retirement have actually lost a little bit of ground since 1989.
PERIES: Right. And so the survey and its findings, and perhaps your analysis of that survey, what is it used for? Will there be an effort on the part of the government to address this disparity?
ROSNICK: Well, I would hope that these findings show the critical importance of Social Security for those that are approaching retirement. Certainly we can see the effects over the course of the last decade or so of the collapse of the stock market at the turn of the millennium and the collapse of the housing bubble in this decade and see how badly that hurt a lot of families.
And families thought that they were going to be ready for retirement. They could see forward. They thought they had money, and they thought they were prepared. But because we let that bubble get out of control and let it explode on them, then they’re actually going to be very heavily dependent on Social Security. This is going to make a big difference for addressing Social Security, Medicare, the Affordable Care Act for people who are not quite there, just to make sure that they can make it through those years.
PERIES: And let’s take an example, David, like, let’s say, a teacher who has been teaching, making an average income of $63,000 and is now ready to retire in the next little while. What does this mean for somebody like that?
ROSNICK: For somebody–for a very middle-class kind of person, they’re going to have very, very little. For somebody who’s worked their whole life, I mean, on average, outside of home ownership, in 2013 the average net worth for somebody between the ages 55 and 64 is less than $90,000. Ninety thousand dollars sounds like, maybe, a lot to some people now, but you think, if they’re going to live for another 20 years past that, then there–actually it’s going to provide very little retirement income and leave nothing to pass on to the next generation.
PERIES: So this is in addition to perhaps the Social Security checks that they will be receiving. This is their sort of wealth that they have accumulated. So what we’re looking at going into the future is a great deal of really impoverished people that have been working all of their lives and unable to sustain any standard of living that they’re used to over the next 20, 30 years, that they would have retired and trying to survive.
ROSNICK: Well, this is why it’s going to be important to make sure that we don’t cut Social Security benefits, because that’s going to be an important support for these people. Private pensions have largely disappeared. It used to be–I mean, these numbers actually–they actually downplay the extent of the disparity, because back in 1989 there were still–you know, people who were near retirement actually had some sort of private pension they got from their employer. Now, a teacher will hopefully have some sort of state pension they can draw upon also. But we’ve seen, say, like, public workers in Detroit have lost their pensions, and a lot of them don’t necessarily have the same Social Security benefits that the rest of us do. So they’re getting doubly hit. The collapse of private and public pensions has been a serious problem.
PERIES: Right. And what is CEPR are saying about this situation now? What are some of the recommendations from your report to address some of this?
ROSNICK: Well, we need to be more aware of bubbles. That’s one thing. I mean, households will have a tendency to at least have some idea of what they need in order to prepare. If somebody’s near retirement, there’s only so much they can do to build their finances backup. But somebody who’s in their 30s or 40s and suddenly realize they don’t have housing wealth, they’ve got decades to rebuild their finances. So it’s important that nationally, like, the Federal Reserve and other policymakers are able to recognize when there’s going to be this kind of serious asset crisis and make sure that this is prevented, so that families have a predictable source of finances to be able to build our wealth. They also need–again, I’ve got to keep reiterating this–the protection of Social Security and Medicare to make sure that there’s underlying support even–even if things are going well for these families, still they need core income support to get them through their retirement.
PERIES: Right. David, I thank you so much for joining us today and explaining all of this to us.
ROSNICK: Thank you.
PERIES: And thank you for joining us on The Real News Network.