JOURNAL; Why the Rich Recovered and the Rest Didn't Posted By: Robert Frank

Why the Rich Recovered and the Rest Didn't



Posted By: Robert Frank





The latest report from the Federal Reserve tells us that wealth of the

middle class declined by more than a third between 2007 and 2010. The

wealth of the top 10 percent, however, grew by two percent.



These statistics will no doubt fuel partisan politics by some who

argue that the rich have gained at the expense of the rest and that

the system is rigged for the rich.



There is, however, a simpler, economic reason behind the disparity.



The wealthy have a greater proportion of their wealth in stocks and

less of it in homes. Stocks and financial investments have rebounded.

Homes haven't. Or at least, not as much.



The latest Fed data doesn't break down the 2010 portfolios of each

group. That data will come later this month. But we know that in 2009,

the top one percent had only 10 percent of their wealth tied up in

their homes. They had much more of their wealth — 38 percent — in

financial investments, including 9 percent of their wealth in stocks.

(While the survey doesn't break out the performance for the one

percent, the stats for the top 10 percent are likely comparable.)



The middle class and upper-middle class, or those in the 50 to 90

percent range, had more than half of their wealth tied up their home.

They had less than a third of their wealth in financial investments

and only 1.6 percent of their wealth in stocks.



Stocks and many financial investments are now edging closer to their

pre-recession peak. Housing prices, however, remain way below their

peak—by as much as a third or more in some markets.



It's not that the wealthy was smarter than the rest. In fact, at the

bottom of the recession, the one percent lost more than the rest of

the population on the stock market slide.



But the wealthy had more surplus wealth that wasn't tied up in their

homes. That allowed them to have more money in financial investments.



Put another way, the one percent owns more than 60 percent of the

nation's individually held stocks. When markets go up, they derive

most of the benefit. When houses go down, they feel it the least.



Again, many will argue about the politics behind these differences.

But the fact is that most Americans don't have much wealth beyond

their homes. Those that do have benefited from the recovery in

financial markets—however long that lasts.