REMEMBER ALL THE NEWS STORIES and columns from last year about how the rich are getting richer and the poor poorer? Well, you can forget about them — it isn’t so.
New research from the Federal Reserve Board finds that the distribution of wealth did not change over the last business cycle (or, from late 1982, when the economy hit bottom, to the spring of 1991, when it hit bottom again). In 1983, the richest 1 percent of American households owned about 31 percent of the country’s total wealth; in 1992, they owned about 30 percent. So the distribution in 1992 was virtually the same as in 1983 — and, for that matter, the same as in 1963, when the richest 1 percent owned about 32 percent of the wealth.
The interesting figure is the one from 1992. Until recently, the latest data had been for 1989, and these indicated a more unequal distribution. In 1989, the richest 1 percent owned about 36 percent of the wealth — which sparked that spate of stories blaming Ronald Reagan for a growing “wealth gap. ” This concern is now out of date, and it may never have been valid. Even if inequality did increase during the long Reagan boom of 1983-89 — and that’s a big “if” — the increase was completely erased during the mild recession that followed.
About that “if”: Every few years, the Fed conducts surveys to determine household assets and liabilities. To discern national patterns, analysts must extrapolate information about 85-95 million households from a sample of 3,000- 4,000 households. For 1983 and 1989, they used several methods. The increase from 32 percent to 36 percent — the one so widely reported — was one of the largest that could have been calculated. By most of the methods available, the change in distribution was not statistically significant; by some, the distribution actually became more equal. The broadest measures reveal a clear pattern: a small increase in inequality during the boom, reversed during the recession. The notion of a growing wealth gap, really, is wrong.
This comes as a surprise to many people. Mention wealth, and the first thing they are apt to think of is the stock market. There was certainly a stock-market boom in the 1980s, and everyone knows that rich people own most of the stock in this country. So why didn’t the distribution of wealth become more unequal? Because stock ownership became more diffuse during that vigorous decade. The non-rich increased their holdings. In 1983, the richest 1 percent of households owned 57 percent of publicly traded stock; in 1989, they owned just under 50 percent; by 1992, they owned less than 40 percent.
What rich people do own, more than anything else, is their own businesses. This accounts for about 40 percent of their wealth. Next in importance is real estate — apartment buildings, office buildings, other commercial property — which comprises about 20 percent of their wealth. Stocks are a distant third, at about 12 percent. The way to wealth, it seems, is to make it, then take care of it yourself.
The distribution of wealth may have remained unchanged during the business cycle, but the amount of wealth did not. The total wealth of American households increased by over $ 4 trillion between 1983 and 1992, from $ 15.6 trillion to $ 19.8 trillion (both measured in today’s dollars) — more than 25 percent in nine years. Average wealth per household increased by about 11 percent, from $ 185,000 to $ 206,000. These are substantial, and statistically significant, gains in a short period of time.
But press attention to these numbers has been muted. The purported increase in inequality under Reagan got front-page attention, but the recent evidence about wealth has been banished to more obscure pages, or ignored altogether. Also front-page news was last week’s Census Bureau report about household income. The headlines blared that the income gap (as distinct from the wealth gap) continued to grow in 1993-94, even though this is just part of a trend that started back in 1968.
In one way, it’s fun to observe the reaction of liberals to the latest news about inequality. Those who happily blamed the Reagan tax cuts and social- program reforms for the widening income and wealth gaps in the 1980s now are trying to explain why the wealth gap was reversed under Bush, and why the income gap continued to increase in the era of Clinton tax and spending increases, before the Republicans gained control of Congress.
But in another way, it’s disappointing that only bad news about economic inequality makes the front pages. What’s more, it is a disservice to the public, because the distribution of wealth goes to the heart of what we think about our society. Americans have always believed that they live in a land of upward mobility, where everyone has a chance to succeed. And if we become convinced that this is nonsense — that the rich just get richer, while the poor are permanently barred from improving their lot — then this altered self-image is likely to have unweb come consequences for our society and public policy.
Thus, the facts — and their dissemination — are important. Yes, the rich are getting richer. And the poor are getting richer. And they’re doing it more or less equally.
John C. Weicher is senior fellow at the Hudson Institute and was chief economist at OMB in the Reagan administration.
