In my last post, I argued that the median American has tolerated the rise in inequality partly because median consumption has been temporarily buoyed by rising indebtedness. Here is one data point from Kenneth Thomas, the author of the Middle Class Political Economist, who has been paying attention to the Credit Suisse’s Global Wealth Report and Global Wealth Databook which shows that the median American adult has a wealth of only $45,000. As the middle class tries to keep up with the rising fortunes of the wealthy, the middle class has saved less and borrowed more. Brad Plumer calls it ‘trickle-down consumption.’ As the middle class has gotten stretched by rising inequality, median US wealth has dropped to number twenty-seven, below even Slovenia!
I tend to be a bit skeptical of such statistics because one person’s financial wealth is another person’s debt and the report treats gross financial wealth as being larger than gross debts which seems like an accounting mistake. Financial wealth is debt. Debts and financial wealth should really cancel each other out. For example, if I have a dollar in cash, that is not really a dollar of net wealth for society as a whole. The only way that my dollar has value is if the rest of the world is willing to give me real goods and services in exchange for the dollar. In effect, my cash is a general debt that the rest of the world owes me, so it should not be considered part of positive net wealth. If we double the amount of dollars, it does nothing to change the real amount of wealth except indirectly if it serves to reduce unemployment and get people working again during a recession by facilitating more exchanges of real goods and services (and that is the whole point of having a monetary system, so good monetary policy can and should keep unemployment low). Real net wealth is never financial wealth. Real net wealth can only be durable assets like land, capital, and education that will produce a future stream of consumption. But those kinds of assets are difficult to track and value compared with financial wealth, so we measure the kinds of wealth like bank deposits that are easy to measure rather than real wealth.
However, median wealth can logically include financial wealth because it should include what the median household owes the rest of the nation. Similarly, any individual should track her financial wealth because financial debts really do make a big difference for an individual’s standard of living. But they don’t change the total wealth of society as a whole because one person’s debts are always another person’s financial assets. In any case, by the standard measures, according to Credit Suisse, there are 26 nations whose median adult citizen has more wealth than the median American.