Recession

Event: Jobs are Not Enough - July 11

July 9, 2012
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Wednesday July 11th, the Asset Building Program will be hosting an event focused on the special July/August issue of the Washington Monthly. "The Future of Success" takes a look at current economic conditions, how we got here, the impact of the recession on the wealth of American families, and how we might get out. The editors and writers of the Monthly have taken the asset building perspective to heart and decided that it is a critical tool for restoring the American Dream. The event will feature two panels, one comprised of contributors to the issue, the other of expert commentators on the issues at hand.

Asset Building News Week, June 17 - June 22

June 22, 2012
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The Asset Building News Week is a weekly Friday feature on The Ladder, the Asset Building Program blog, designed to help readers keep up with news and developments in the asset building field. This week's topics include the monetary policy, economic inequality, and financial services.

 

Monetary Policy

The New Inequality Story is Wealth, Not Income

June 20, 2012
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Inequality has been receiving a fair amount of attention in recent years. Even before the Great Recession hit, a number of researchers and academics were sharing observations on the divergent paths of those in the middle and on the bottom compared to those at the top and very top. Median wages have been relatively stagnant, and, more importantly, had become divorced from productivity gains. And while poverty has persisted for large segments of the population, the share of income controlled by those at the top has continued to climb. These have been long-term trends which began to take shape in the early 1980s. Two questions have been on my mind. First, what about wealth? Second, what’s the connection between the Great Recession and inequality in America?

I’ve posed these questions to Tim Noah, whose recent book, The Great Divergence, has helped elevate the discussion of inequality in America. Tim recently posted a response on his informative and insightful blog. But I didn’t like his answers.

In his book, Tim limits his discussion of inequality to the distribution of income. I think this fails to capture the full extent of the phenomenon. In some ways, I understand the choice. We have much better data for income than we do for wealth and traditionally that is where the research on inequality has focused. Still, income is only part to the story, and I fear Tim has needlessly limited his inquiry. It reminds me of looking for something where the light is brightest even though it was lost somewhere else.

New data from the Federal Reserve make it clear that wealth has assumed a leading role in the inequality story. Their Survey of Consumer Finances offers one of the fullest accounts of the family balance sheet. Unfortunately, it is conducted only every three years. The good news is that the last two surveys (2007 and 2010) offer a means to examine the impact of the Great Recession.

Here is what the Fed reported about the changes in wealth holdings. Between 2007 and 2010, the average family saw their wealth decline 39 percent. That is a sentence that deserves to be bolded. This far outpaced the 8% drop of income the average family experienced.  The 39% drop in wealth speaks to the severity of the recession and it did get front page treatment on a number of news outlets. But the impact was not experienced equally. Families in the top ten percent by income actually saw their net worth increase almost two percent.

Those at the top had their wealth holdings increase and almost everybody else experienced a drastic decline. That’s inequality by definition. Check out the visual (rollover to see the absolute figures).

Here’s another perspective on the same phenomenon. This time the families are ranked by their net worth holdings rather than income. Those in the bottom 25% had their (admittedly small) wealth holdings completely wiped out. Families in the next three groups experienced big drops but at increasingly declining rates. The top 10% were relatively immune from the impact of the Great Recession, experiencing a wealth loss of 6.4%.

These charts offer new and illuminating information. While we have known for years that median incomes have stagnated even as there were income gains at the very top, the re-concentration of wealth is an emerging phenomenon. And it appears that the Great Recession has changed the dynamics at play.

Tim writes on his excellent blog that he can’t get too worked up about this for a number of reasons, almost all of which I find surprising.

A Small Victory for SNAP

June 20, 2012
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Yesterday, the Senate voted down an amendment that would have gotten rid of the mechanism that allows states to eliminate asset tests for SNAP.  Nearly forty states have lifted their asset tests for most applicants to the program through the challenged policy, known as broad-based categorical eligibility (BBCE). It’s not a big surprise that the amendment failed; a similar proposal was defeated in the Senate last year. However, in light of the vote, it’s worth taking a moment to recognize many of the ways in which this policy has played a positive role, both in helping families access the benefits they qualify for and in easing administrative burdens at a time when state budgets are in crisis. Despite frequent statements to the contrary, BBCE has actually increased state flexibility and allowed for greater efficiency and associated cost savings.

Preserving Access to Justice: Legal Services and the Safety Net

June 19, 2012
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The Legal Services Corporation (LSC), which provides funding to legal services organizations throughout the country, is an essential feature of the safety net—though rarely described as such. LSC funding is used to provide civil legal services to households at or below 125% of the federal poverty line. Unlike in criminal cases, where the right to counsel is constitutionally guaranteed for indigent defendants, parties to civil cases have no such right under federal law. In other words, depending on where you live, it’s perfectly legal for you to lose your house, all your possessions, and perhaps even custody of your child without ever talking to a lawyer, no matter how little money you make.

LSC-funded services are crucial in helping keep many families afloat. Yet perhaps unsurprisingly, like other social services programs, LSC has faced major budget cuts, and continues to see its funding attacked. Over the past three decades, LSC’s budget has been effectively cut by just around seventy percent. One member of Congress even proposed an amendment to the FY 2013 House Appropriations Bill that would have ended all funding for LSC, citing the organization as “nonessential” and alleging fraud (it failed, but received 122 votes in the House). Like the proposed cuts to SNAP, cutting LSC’s funding—or even failing to increase it—could have truly dire consequences for low-income communities nationwide.

Surveying Household Wealth: Part 2 - Retirement Savings

June 19, 2012
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This blog post is part two in a series analyzing the recently released Survey of Consumer Finances from the Federal Reserve. The SCF is a triennial survey of American families that offers insights into income, wealth, debt, and savings over time. Today’s post explores the data on retirement account ownership.

Saving adequately for retirement helps pave the road to a comfortable and financially secure future. As part one of this series noted, the 2010 Survey of Consumer Finances (SCF) data show that in 2010, Americans prioritized the need for liquidity over saving for retirement for the first time since 2001. While precautionary savings allow families to plan for the short and mid-term, saving for retirement remains a critical long-term savings need. Indeed, despite the drop from first place, SCF data show that retirement ranked a close second in 2010.

Surveying Household Wealth: Part 1 – Precautionary Savings

June 18, 2012
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This blog post is part one in a series analyzing the recently released Survey of Consumer Finances from the Federal Reserve. The SCF is a triennial survey of American families that offers insights into income, wealth, debt, and savings over time. Today’s post explores the importance of building precautionary savings and policy approaches to support families’ savings goals.

Americans identified the need to “save for a rainy day” as the top reason for saving their money in 2010. This is a departure from past surveys: the last three Surveys of Consumer Finances (in 2001, 2004, and 2007) showed that Americans’ top reason for saving was retirement. This historic shift makes a lot of sense in the context of other data presented by the SCF.

The Case for Wage-Led Growth

  • By Jeff Madrick, Roosevelt Institute and Schwartz Center for Economic Policy Analysis
June 15, 2012

The share of wages and salaries in Gross Domestic Product (GDP) has declined in most rich nations over the past 20 to 30 years. Over the same period, income inequality has grown in most of these nations, and rapidly in some of the largest of them, resulting in slow wage growth for most consumers. 

Federal Reserve Highlights Widespread Declines in Families' Wealth

June 12, 2012
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The Federal Reserve has released the most recent Survey of Consumer Finances (SCF) [pdf here] which covers 2007 through 2010 and presents additional evidence of the decline in both income and wealth during the recent recession. The report shows that American families’ median net worth fell from $126,400 in 2007 to $77,300 in 2010, representing a 40% drop.

SCF data support and are consistent with one of the key findings of our Assets Report Infographic. Data we relied on from Pew shows that between 2005 and 2009 black and Latino households saw disproportionate declines in their wealth, due in large part to the decline of their home values in the face of the housing crisis. This recent blogpost of ours looked at the role housing wealth plays in exacerbating the racial wealth gap.

David Corn and Timothy Noah Discuss the Politics of Inequality

May 31, 2012
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On Wednesday, May 30, the Asset Building Program hosted two authors for a conversation about the history, politics and rhetoric of income inequality in the U.S. Reid Cramer, Director of the Asset Building Program, introduced Timothy Noah, Senior Editor at The New Republic and author of The Great Divergence: America's Growing Inequality Crisis and What We Can Do about It, and David Corn, Washington Bureau Chief of Mother Jones and the author of Showdown: The Inside Story of How Obama Fought Back Against Boehner, Cantor, and the Tea Party.

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