Another Misleading Article on Our Wealth Growth

Henry K. Hebeler

6-5-08

So here we go again.  The Federal Reserve puts out a Net Worth chart which makes it look like our household wealth has been increasing even though savings rates are zilch.  Then The Wall Street Journal publishes it leading people to believe our household wealth has been increasing substantially over the last decade.*  Well it hasn't. 

To begin with, the chart is not inflation adjusted.  That brings the 2007 value down almost to the 1999 value. It's even worse than a simple inflation adjustment because real estate component has been adjusted upwards to replacement cost.  Then, although labeled household wealth, it's not households at all.  To show household wealth, it should be on a per household basis and show the median value.  Otherwise it includes Bill Gates, Warren Buffett, George Soros, etc.  I personally don’t expect to get any of their wealth.  Also, a per household measure would account for the population growth in the interval.  Instead of household wealth increasing, we'd see that household wealth actually fell appreciably.

But that's not the end.  Consider the taxes we owe.  The chart does not reduce retirement savings by the taxes that will be due.  Nor does it account for the cost we'll all bear per household for the national debt and unfunded obligations for Social Security, Medicare and public pensions.  Including the liabilities we all bear for the government would show that we're hurdling down a ski ramp into deep, deep trouble.

* WSJ, 6/5/08, p. C1, “’Wealth Effect’ may be near payback time.”