The Dow Passes 10,000 — Hooray?
Wow! The Dow Jones average is over 10,000! And still, as of this writing, rising. Judging from the media celebration, here is proof positive that America is thriving.
But who or what is actually thriving?
There are two ways to answer that question. One is to travel around America — all of it, the inner cities and the uptown penthouses, the trailers and the trophy homes — and see. The other is to look at the statistics. Either way you find the same answer. A small minority of Americans are thriving. On paper anyway. For the moment.
How many American households, would you guess, own stock worth more than $5,000 and thus care a fig about the Dow? The number has been rising lately, but it’s still less than 30 percent of us. The spectacular stock market gains from 1989 to 1997 went almost entirely (85.8 percent) to the richest 10 percent. Over 40 percent of the gains went to the richest one percent.
What does it take these days to be in the richest one percent? The answer seems to surprise everyone, especially the richest one percent. In income it takes just over $200,000 a year. In wealth it takes about $3 million. Surveys of people who fall into this category show that a majority, their eyes firmly fixed on the few ahead of them instead of the 99 percent behind them, don’t even consider themselves rich.
As of 1997, before this latest stock market surge, the richest one percent of American families held 40 percent of the wealth. The concentration of wealth hasn’t been that high since, um, 1929. It was at its lowest in 1976, when the top one percent held just 20 percent of the wealth.
The media have a way of portraying the rich as normal, the middle class as quaintly amusing, and the poor as criminal, when the poor are visible at all. Let’s concentrate for a moment on what is happening to the amusing or invisible majority.
In 1967 the average hourly wage for production workers (more than 80 percent of all wage and salary workers) was $12.03 (in 1998 dollars). In 1973 it was $13.61. In 1998 it was $12.77.
The bottom 40 percent of American households possess only 0.5 percent of household-owned net worth. The bottom 60 percent hold just 4.9 percent of household net worth. The net worth of the bottom 40 percent went down by almost 80 percent between 1983 and 1995; the net worth of the middle 20 percent went down by 11.5 percent; the net worth of 95 percent of all households declined. That of the top one percent went up by 17.4 percent.
Sixty percent of American households do not hold enough financial reserves to carry them for even two months at their current level of consumption.
Household debt as a percentage of annual income was about 30 percent in 1949. It was 57.6 percent in 1973 and 84.8 percent in 1997. In 1997 almost 60 percent of American households owed on their credit cards an average of $7,000, which meant they paid on average $1,000 that year in interest.
In 1998 1.4 million Americans filed for personal bankruptcy, double the number in 1990.
The average personal savings rate in the United States has plummeted from 8.6 percent in 1984 to 5.7 percent in 1992 to 0.5 percent in 1998.
Is this a thriving nation?
Well, then, why is the stock market soaring?
It’s not because the values of the companies represented there have gone up by 30 percent per year for the past four years. It’s not because the economy is churning out that many more goods and services. It’s not because profits and dividends are rising. The ratio of stock price to dividends is ridiculously high and climbing.
The real reason, which I think everyone quietly knows, is that the huge amounts of money piling up in the hands of that top few percent have nowhere else to go. Nothing in the economy can absorb so much cash, much less make it multiply. Even at their trophy-house sports-utility best, the rich can’t spend it. The middle class aren’t actually better off, so their demand rises only with their debt. Companies don’t need so much real investment. The government is borrowing less now that the deficit is shrinking. Stock markets in much of the world are crashed; no point in sending money out of the country.
So the excess of the rich floods into overpriced stocks, raising the price still further, making the rich still richer. On paper. If everyone tried to cash out at once, there would be a major musical-chairs scramble with few real places to sit.
This is an economy of illusion. It is a mean economy, as worker salaries stagnate, worker benefits plummet, CEO compensation soars, and the rich extract interest from the poor and throw tax burdens onto the middle class. It is a financially unstable economy in a socially unstable society.
As economist Lester Thurow says, “It is a stupid society that runs an experiment to see where its breaking points are.”
(The statistics in this column, and many more, can be found in “Shifting Fortunes,” available for $6.95 from United for a Fair Economy, 37 Temple Place, 2nd floor, Boston MA 02111, telephone 617.423.2148, e-mail email@example.com.)