Think We're the Richest in the World?
By Steve Gillman - 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 Alternet.com 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
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.
and Wealth Gap
the Middle Class
Richest Country in the World?