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The $5 Problem

by Kevin D. Williamson

The scandal of Americans’ Third World net worth

An examination of Americans’ household balance sheets uncovers something to discourage everyone: For those with preferences for minimalistic government and a maximally free economy, the disastrous state of our private finances must force some skepticism about the traditional conservative belief that people are, if sufficiently incentivized, capable of making rational long-term decisions about their own economic affairs. For those better disposed toward the welfare state and government intervention in the economy, the same data should inspire a great deal of skepticism about the ability of well-intentioned political steering to produce results that are something other than catastrophic, especially for the least well-off among us. We are collectively many trillions of dollars — $6.6 trillion, according to a recent Senate report — short of the savings we will need to maintain our standards of living in retirement, which will necessitate a greater reliance upon Social Security, itself more than $20 trillion short of what it needs to fund its promised benefits.

First, the big picture: In terms of median adult wealth, Credit Suisse calculates that the United States, at $38,786 per adult, is a relatively poor performer, not only lagging small outliers such as Luxembourg ($153,967) and Switzerland ($87,137), but also well behind Japan ($141,410), Italy ($123,710), and Canada ($81,610) — with barely 20 percent of the median wealth of category leader Australia ($193,653). It is tempting to draw facile conclusions about macroeconomic policies from these rankings, but both Scandinavian social-welfare states such as Sweden ($41,367) and the freewheeling capitalists in Singapore ($95,542) enjoy higher median wealth than does the United States, which comes in at No. 27 on the world rankings.

With every increase in the level of detail at which the issue is examined, our situation looks worse. Married couples do relatively well: A study by Mariko Chang incorporating data from the Survey of Consumer Finances finds that married couples between the ages of 35 and 49 have a median net worth of $134,300, and those 50–64 have a median net worth of nearly $300,000. But for single men, that number drops precipitously: $42,050 for the younger group and $105,000 for the older. Single women take yet another step down, and a big one: $15,000 for the 35–49 group, $96,630 for the 50–64 group. The disparity between racial groups is pronounced: Sampie Terreblanche, a professor at Stellenbosch University, calculates that black Americans in the Age of Obama are worse off vis-à-vis their white neighbors than black South Africans were relative to their white countrymen under apartheid; the average black man in the United States has a net worth somewhere between that of the average adult in Swaziland and Sri Lanka. Chang calculates that 15 percent of married white households (ages 18–64) have a net worth that is zero or negative, but it is 28 percent for married blacks and 31 percent for married Hispanics. Nearly half of single black and Hispanic women have zero or negative net worth. Single white women in their prime earning years (ages 36 to 49) have a median net worth of $42,600; black and Hispanic single women in that same age group have a median net worth of — this is not a typo — $5.

One finsky. That’s a venti frappuccino at Starbucks, not a life’s savings.

Net worth is the sum of savings and debt, and less well-off Americans have problems on both fronts. Some 82 percent of married whites own their homes, with median equity of $104,000, two-thirds of them own stocks, with a median portfolio value of $45,000, and nearly a fourth of them own a business, with a median value of $99,000. A quarter of single black men do not even have a bank account, only a third of single black women own a home, only 48 percent of married blacks and 28 percent of married Hispanics own stocks. White women are more likely to own their homes than are non-white women, but they have on average smaller mortgages. Whites finish college at higher rates than non-whites, but fewer of them have student-loan debt. Hispanic men owe 50 percent more on their credit cards than white men do.

There are several conclusions to take away from this. One is that Charles Murray is right about the cultural divorce between well-off America and dysfunctional America. The median net worth of a married couple far exceeds that of a single man and a single woman combined. It may be that married people get rich, or it may be that rich people get married. It’s probably a bit of both, and the two are mutually reinforcing. What is much clearer is that women who have children outside of marriage end up being the poor mothers of poor children. But the declining economic prospects of a great many young American men make them less likely to marry even if they want to.

The interaction between policy and culture is difficult to untangle. The Dutch, for example, have a famously laissez-faire attitude toward marriage (a trio was married in 2005), but their out-of-wedlock birthrate is not very different from the overall American rate — though it is far lower than the black-American rate and the Hispanic-American rate. Being an unmarried Dutch woman does not correlate as strongly with being poor or having a relatively low rate of savings — though the Dutch, in general, save even less than Americans do. You find poor countries at both ends of the household-savings-rate distribution (high-savings China, low-savings Jamaica); in the middle you’ll find the United States, with a rate comparable to that of Canada or Italy, though well below the German or Australian rate.

There are two political problems here: One is government consumption, the other is government steering. With total (federal, state, and local) spending amounting to 42 percent of GDP, according to the Heritage Foundation, the United States is a lot closer to the free-spending Netherlands (50 percent of GDP) than it is to thrifty Singapore (17 percent of GDP), and far more like Canada (43 percent) than Australia (35 percent). And the United States has a good deal less to show for it. The great scandal of American life is that we pay for German levels of government without enjoying the related benefits. These expenses are passed on in both explicit and hidden taxes, both of which contribute to our relatively low household wealth, but they do not support the sort of reliable safety net that mitigates the effects of relatively low savings in places such as the Netherlands.

So the government consumes too much, but it also pushes private consumption in the wrong direction. The great example of this was the housing bubble, the collapse of which has contributed significantly to the reduction of Americans’ net worth. But that is simply a dramatic example of a more general trend: encouraging low interest rates, consumer spending, and consumer borrowing as the medicine for every economic ailment we experience, from the dot-com retreat to the millennial recession to the housing bust. We have spent a generation encouraging Americans to use their houses as substitutes for savings accounts on the theory that outsized returns on the former would offset negligible returns on the latter, even though most Americans have to take on the largest loans they will ever carry to participate in that market. Better-off Americans save through stocks and other financial instruments, but those carry risks and costs that keep most lower-income Americans from availing themselves of their long-term benefits, even as they forgo such low-return conventional savings instruments as cash accounts and certificates of deposit. The problem is that the same higher interest rates that would make saving more attractive threaten the fiscal stability of the federal government, which is the world’s largest debtor. This is a national financial pickle that there is no easy way out of.

At the same time, those $0.00-net-worth households and $5 households are an enduring problem, our most serious domestic problem after the national debt. The racial and cultural fault lines that run through those household balance sheets separate the policymaking elite from those whose interests they purport to serve, and crossing over them is no small task. But conservatives looking for an issue to connect them with voters in zip codes outside their traditional strongholds, who correctly intuit that one more chorus of “Let’s Cut Income-Tax Rates” is not going to get the job done — politically or economically — might begin by pointing out that we have an expensive welfare state that has not contributed much to the measurable welfare of its so-called beneficiaries, that the War on Poverty has been a much larger and costlier disappointment than the War in Iraq, and that the political party that has wrapped itself in the mantle of justice for the black and the brown has left a lot of them with nothing more than couch-cushion money to show for themselves.

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