The Relationship between Debt and Wealth
in the US 1983-2001


There has been both an unprecedented rise in the wealth of the super rich in the US over the past several decades as well as a simultaneous increase in the amount of domestic and foreign debt.
Whether by design or coincidence the two amounts are about the same. Effectively the US has borrowed from the world and given the money to the wealthy. Here are the details.

Data

The table shown below and the following calculations give an approximate amount of the wealth going to each sector of US households.

Mean Wealth Holdings and Income by Wealth or Income Class, 1983-2001  (In thousands, 2001 dollars)

  Top Next Next Next Top 4th 3rd Bottom  
Variable 1.0% 4.0% 5.0% 10.0% 20.0% 20.0% 20.0% 40.0% All
A. Net Worth
1983 7,796 1,289 560.8 302.8 939.3 145.2 60.3 5.1 231.0
2001 12,692 2,453 937.4 490.3 1,604.7 215.3 75.0 2.9 380.1
% change 62.8 90.2 67.2 61.9 70.8 48.3 24.4 -43.6 64.6
% of gain 32.8 31.2 12.6 12.6 89.2 9.4 2.0 -0.6 100.0
B. Financial Wealth
1983 6,722 984 384.6 172.4 715.3 61.9 13.3 (6.9) 156.7
2001 14,075 1,833 669.8 301.5 1,388.4 102.7 21.5 (10.1) 298.5
% change 109.4 86.2 74.2 74.9 94.1 65.8 61.4 46.1 90.5
% of gain 51.9 23.9 10.1 9.1 95.0 5.7 1.2 -0.9 101.0
C. Income
1982 655 169 105.1 78.9 132.2 55.2 36.1 14.7 51.0
2000 1,117 224 139.7 102.3 186.8 69.3 44.3 17.9 67.2
% change 70.5 32.5 33.0 29.7 41.3 25.6 22.7 22.0 31.9
% of gain 28.4 13.5 10.6 14.4 67.0 17.4 10.1 7.9 102.3
Source: author's computations from the 1983 and 2001 Surveys of Consumer Finances.  
For the computation of percentile shares of net worth, households are ranked according to their net worth; for percentile shares of financial wealth, households are ranked according to their financial wealth; and for percentile shares of income, households are ranked according to their income.
Data Source: Levy Institute

My calculations

Wealth increase over the period:
Households in 2000 is about 106,000,000
So top 1% = 1,060,000
Population 1983 234,000,000
Population 2000 276,000,000
Households in 1983 is about  90,000,000
Wealth in 1983 is 900,000 X 7,796,000 = 7,016,400,000,000
Wealth in 2001 is 1,060,000 X 12,692,000 = 13,453,520,000,000
Gain in wealth by top 1% = 6,437,120,000,000 ($6.3 trillion)

During the period from 1983 to 2001 the debt of the US (not in constant dollars) went from  $1.3 trillion to $5.8 trillion.
This is an increase of $4.5 trillion. At the end of  2004 the amount was $7.4 trillion.

This link Trade Deficit shows the figures for the balance of trade deficit. For our purpose the rise from 1985 to 2004 was about $5 trillion.

Discussion

As a rough measure we can say that the rise of wealth of the super rich account for about 80% of the rise in the combined debt, and the rest can be attributed to the wealth increase of the regular rich.

The issue is not whether the rich "caused" the debt, but what the effect on the US economy will be as a result of these changes. The effect will be the same as if they were deliberately responsible. The wealth benefits accrued to between one and five percent of the population and the burden to repay the debt will be shared by all. When this happens in developing countries the IMF intervenes and forces draconian increases in taxes and cuts in social services.

By absorbing all the growth in the economy for themselves the top tier forced those in power to fund social, infrastructure and military programs by borrowing. Not only did the "trickle down" theory not hold, but the "shrink government" plans turned out to be false as well. There is no consensus to eliminate or substantially alter social welfare programs so the attempt to strangle them by running up debt failed. The consequences will not be as anticipated. Since the US is probably strong enough to resist IMF pressures to service its debt by the usual prescriptions it is left with the only option that governments have recourse to in this situation: inflation and devaluation of the currency.

The results won't be pretty.

Appendix

Here is some of this data presented graphically (courtesy of Ben Tower).

financial_wealth (10K)

net_worth (10K)

income (10K)

income_growth (7K)

income_growth_pct (7K)

income_distribution (12K)

gdp_vs_debt (61K)

A discussion on the difficulties with implementing a better distribution of wealth in this related essay.


Moral: A just society is an equitable society, an equitable society is a just society.

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If you have any comments or for further discussions email me at robert.feinman@gmail.com
Copyright © 2005 Robert D Feinman
Feel free to use the ideas, but the words are mine.