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Wednesday, January 01, 2020

44% of the rich aren't millionaires

The actual quote from Barbie is "math class is tough," but over the years it is remembered as "math is hard" because it is hard, at least to reporters. They just buy whatever liberals tell them.

One canard comes from a paper in November 2017 by Edward N. Wolff of New York University, "Household Wealth Trends in the United States, 1962 to 2016: Has Middle Class Wealth Recovered?"

His answer was no.

What made the news was his statement that: "Despite the fact that almost half of all households owned stock shares either directly or indirectly through mutual funds, trusts, or various pension accounts, the richest 10 percent of households controlled 84 percent of the total value of these stocks in 2016."

This has been interpreted by the press as the rich owning 84% of the stock market.

That's not true because almost half the stock market is owned by pension funds, foreign investors, and other groups.

And 44% of Wolff's richest households aren't millionaires.

Wolff identified 10% of all households as rich.

10% of all the 128 million households in America is 12.8 million households.

However, only 7.2 million households have a million dollars or more in assets.

Wolff just raised 5.6 million households who are not millionaires to the level of rich in an effort to show the rich are rich.

Then there is this business of 84%. News reports blur the fact that this is 84% of what individual Americans own in the stock market through shares and mutual funds.

I shall try to divine this.

Foreign investors in the stock market own roughly 20% of the market and pension funds another 20%. I could not find a good source for endowments (colleges and foundations), so let us put the non-individual stock ownership at 60% of the $33 trillion in total market capitalization value in America.

That's $19.8 trillion (million million). Let's round that off to $20 trillion. That is held by 52% of households according to Wolff. That is 67 million households or 174 million people given the average household size of 2.6.

So when the stock market rises, 174 million Americans living in stock-owning households directly benefit. Don't forget those pension funds cover a few more Americans as well.

That averages $114,942.53 per person.

The top 10% -- 44% of whom are not millionaires -- own a combined $16.8 trillion or $965,517.24 per household, which is $371,352.78 per person in those households.

The reason the rich (including non-millionaires) benefited from the recovery is the non-rich bail on the stock market in a recession.

Money magazine reported, "The concentration of stock holdings among the rich, Wolff says, is due to the twin stock market busts of 2001 and 2008. While the middle class was scared off by these declines, he explains, wealthier investors were able to swoop in and increase their holdings."

But all is not lost. People own homes.

82 million households (covering 213 million Americans) own homes. Under President Trump, the average price of a home has risen which means an increase in equity for the average home owner.

And people have other assets. The family of the secretary of Nobel physicist Richard Feynman is auctioning a book he autographed for her.

My point is simply that you can make numbers say anything. When a news report cites a percentage, it should also provide the number that it represents -- and vice versa.

The idea that only the rich benefited from last year's 34% rise in the S&P is nonsense when 44% of the people listed as rich are not millionaires.

But if stocks keep rising, they will be.

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