Think We're the Richest in the World?

By - October 7, 2013

It is a common belief that the people of the United States are the wealthiest in the world. But how wealth is measured makes all the difference. While the country might be wealthy, are most of the people in it? How does the average person compare to an average person from other countries? In fact, the average adult in the U.S. has less wealth than those in 25 other countries.

In order to have a better understanding of wealth in the United States, you have to understand the difference between a mean and median, both of which are used as a synonym for "average." A mean is arrived at by simply adding all values and dividing by the number of values. Suppose, for example, four people live in a very small country, and the wealth (total assets minus debts) of each is $100,000, $24,000, $58,000, and $89,000. We add those numbers ($271,000) and divide by four to arrive at an average of $67,750. That is the mean measure of wealth of residents in our little town.

There is a problem with measuring things in this way. If a rich man moved to town with his $5 billion in assets, this "average" would be over $1 billion. Now, if you were to read that the average wealth of people in this town was over $1 billion, you might think these are some pretty rich people. But, of course, nothing has changed for the original four. This is an extreme example, but a meaningful one. It shows the problem of using a mean average when there are extreme values. And in a country where some people already own wealth equal to what I would earn in 2 million years at my job (not an exaggeration), there are some pretty extreme values. These skew the picture a bit.

When using the median wealth figure we get a more meaningful look at the wealth of the people, at least if we want to know how most people are faring. A median is simply the middle point in a set of values; the point where half fall above and half below. In our little town, even after the billionaire moves in, that would be $58,000. Notice that this more fairly represents the typical resident than the mean, which shows over $1 billion in income per person.

In the United States, the median wealth per adult is around $38,000 at the moment, according the Global Wealth Data Book. There are twenty-five other countries where people have more wealth by this measure. They include Singapore, Finland, and Spain. The median tells us more about the middle classes than about the wealth of nations. An article on recently reported on this, and offered some reasons why the middle class here is not doing as well as so many others.

They start with the fact that we do not have universal healthcare, and that we spend more per resident on healthcare than any other industrialized country while producing worse outcomes by most relevant measures. They might be right about this in part. Even if we had more freedom in the healthcare market, which would bring down prices (the least regulated areas like eye care and plastic surgery have seen declining real prices), health care is still just plain expensive. There is almost no other way to wipe out a family's savings as quickly as an accident or disease. Health issues regularly eat up in a few weeks' time assets that have taken many years to accumulate. Whatever one's opinion is about universal government-provided healthcare (as opposed to the insurance-company-enriching mess currently being implemented), it's reasonable to assume that we had it we would remove the single biggest cause of sudden destruction of family wealth.

The suggestion that stronger labor laws would change things for the better has less evidence for it in my opinion. When some employees have their wages raised using laws that protect unions, for example, that higher cost is passed on in the form of higher prices for the goods and services produced, so that those outside of unions are worse off, and even those who do get a raise may be only slightly better off after paying the higher prices.

The minimum wage debate is equally suspect. Only a small percentage of employees work at or below the legal minimum wage. Even during this difficult economic time the most recent figure is 4.7% (according to the BLS in 2013). In other words, over 95% of workers are making more than the legal minimum, so clearly this law does not control the general level of wages. The suggestion that the minimum wage be set at a "living wage" level would eliminate a lot of entry-level jobs that young people use to get their first work experiences. A minimum that brings up the bottom few percent probably does no harm, but to understand the folly of trying to raise true wages by law, just imagine if the law stipulated a minimum wage of $100 per hour. Do we really think this would somehow make us all well-off?

The Alternet article is perhaps right about the excesses of Wall Street, where investing has become gambling, and all the biggest players get to turn to government for relief when they lose. That certainly transfers wealth from taxpayers to wealthy bankers, corporate officers, and others who know how to play this cynical game.

The article also points to debt from education, which might be a small part of why accumulating wealth is difficult for some. Our highest-in-the-world rate of incarceration certainly puts a drag on the economy, leaving the taxpayer who pays for this with less money to save, and leaving those jailed with no income for a while and reduced income for life due to the difficulty of finding work with a prison record. Perhaps it is time to decriminalize victimless activities, and to look for better ways to deal with non-violent offenders.

It is also true that we now compete with the low-wage countries of the world more than ever. But this can be seen in more than one way. After all, the tens of millions who have left poverty and joined the middle class in China have done so in part because we trade more freely with them. In other words, our loss of income has been their gain, and the gains there are perhaps more meaningful than what we have lost (poverty there is still worse than anything we have here, after all). I'm not sure that we should seek to raise our own standard of living at the expense of impoverishing others in the world.

The suggestion that our tax structure favors the wealthy more than in the past is correct if we look at the last sixty years, and nothing much will be done about that, because the wealthy pay for the campaigns of the "representatives" we have to choose from. A hotel room cleaner can pay a higher percentage of his or her income in taxes than many wealthy people pay, and the way taxes are collected often hides who is really paying which ones. Tenants ultimately pay property taxes, for example, even if this is not obvious, and employees ultimately pay the whole 15.3% of payroll taxes, even if they only see 7.65% taken out of their paychecks.

It is also true that many college students are opting for careers on Wall Street rather than in field that would contribute more to real wealth production. There is a need for stock markets, but more and more of the activities on Wall Street are about speculation and moving money around, rather than about helping in the production of fundamental goods and services.

One thing that is not mentioned in the article is that when it comes to median household income the United States still shows up regularly in the top five countries of the world. We apparently still do okay making money, but have a hard time converting that income into long-term wealth. Some of that problem is for the reasons suggested above (a broken leg can wipe out a lifetime of savings in a few weeks), but this discrepancy also suggests that cultural habits might play a role. Do we spend too much, and use debt for consumption too often, leaving less money to save and invest? Could that have a role to play in the low level of middle class wealth in this country? It seems likely.

Other Pages

Income and Wealth Gap

Taxing the Middle Class

Richest Country in the World?