Multinational Monitor: What is wealth?

Edward Wolff: Wealth is the stuff that people own. The main items are your home, other real estate, any small business you own, liquid assets like savings accounts, CDs and money market funds, bonds, other securities, stocks, and the cash surrender value of any life insurance you have. Those are the total assets someone owns. From that, you subtract debts. The main debt is mortgage debt on your home. Other kinds of debt include consumer loans, auto debt and the like. That difference is referred to as net worth, or just wealth.

MM: Why is it important to think about wealth, as opposed just to income?

EW: Wealth provides another dimension of well-being. Two people who have the same income may not be [equally] well off if one person has more wealth. If one person owns his home, for example, and the other person doesn't, then he is better off.

Wealth -- strictly financial savings -- provides security to individuals in the event of sickness, job loss or marital separation. Assets provide a kind of safety blanket that people can rely on in case their income gets interrupted.

Wealth is also more directly related to political power. People who have large amounts of wealth can make political contributions. In some cases, they can use that money to run for office themselves, like New York City Mayor Michael Bloomberg.

MM: What have been the trends of wealth inequality over the last 25 years?

EW: We have had a fairly sharp increase in wealth inequality dating back to 1975 or 1976.

Prior to that, there was a protracted period when wealth inequality fell in this country, going back almost to 1929. So you have this fairly continuous downward trend from 1929, which of course was the peak of the stock market before it crashed, until just about the mid-1970s. Since then, things have really turned around, and the level of wealth inequality today is almost double what it was in the mid-1970s.

Income inequality has also risen. Most people date this rise to the early 1970s, but it hasn't gone up nearly as dramatically as wealth inequality.

MM: What portion of the wealth is owned by the upper groups?

EW: The top 5 percent own more than half of all wealth. In 1998, they owned 59 percent of all wealth. Or to put it another way, the top 5 percent had more wealth than the remaining 95 percent of the population, collectively.

The top 20 percent owns over 80 percent of all wealth. In 1998, it owned 83 percent of all wealth.

This is a very concentrated distribution.

MM: Where does that leave the bottom tiers?

Wolff: The bottom 20 percent basically have zero wealth. They either have no assets, or their debt equals or exceeds their assets. The bottom 20 percent has typically accumulated no savings.

A household in the middle -- the median household -- has wealth of about $62,000. $62,000 is not insignificant, but if you consider that the top 1 percent of households' average wealth is $12.5 million, you can see what a difference there is in the distribution.

MM: What kind of distribution of wealth is there for the different asset components?

EW: Things are even more concentrated if you exclude owner-occupied housing. It is nice to own a house and it provides all kinds of benefits, but it is not very liquid. You can't really dispose of it, because you need some place to live.

The top 1 percent of families hold half of all non-home wealth. The middle class's major assets are their home, liquid assets like checking and savings accounts, CDs and money market funds, and pension accounts. For the average family, these assets make up 84 percent of their total wealth.

The richest 10 percent of families own about 85 percent of all outstanding stocks. They own about 85 percent of all financial securities, 90 percent of all business assets. These financial assets and business equity are even more concentrated than total wealth.

MM: What happens when you disaggregate the data by race?

EW: There you find something very striking. Most people are aware that African-American families don't earn as much as white families. The average African-American family has about 60 percent of the income as the average white family. But the disparity of wealth is a lot greater. The average African-American family has only 18 percent of the wealth of the average white family.

MM: Are you able to do a comparable analysis by gender?

EW: It is hard to separate out husbands and wives. Most assets are jointly held, so it is not really possible to separate which assets are owned by husband and which by wife. Even when things are specifically owned by one spouse or another, the other spouse usually has some residual lien on the assets, as we know from various divorce proceedings. If a pension account is owned by the husband and the family splits up, the wife typically gets some ownership of the pension assets. The same thing is true for an unincorporated business owned by the husband. It really is not that easy to separate out gender ownership in the family.

What we do know is that single women, or single women with children, have much lower levels of wealth than married couples.

MM: How does the U.S. wealth profile compare to other countries?

EW: We are much more unequal than any other advanced industrial country. Perhaps our closest rival in terms of inequality is Great Britain. But where the top percent in this country own 38 percent of all wealth, in Great Britain it is more like 22 or 23 percent.

What is remarkable is that this was not always the case. Up until the early 1970s, the U.S. actually had lower wealth inequality than Great Britain, and even than a country like Sweden. But things have really turned aroundover the last 25 or 30 years. In fact, a lot of countries have experienced lessening wealth inequality over time. The U.S. is atypical in that inequality has risen so sharply over the last 25 or 30 years.

MM: To what extent is the wealth inequality trend simply reflective of the rising level of income inequality?

EW: Part of it reflects underlying increases in income inequality, but the other significant factor is what has happened to the ratio between stock prices and housing prices. The major asset of the middle class is their home. The major assets of the rich are stocks and small business equity. If stock prices increase more quickly than housing prices, then the share of wealth owned by the richest households goes up. This turns out to be almost as important as underlying changes in income inequality. For the last 25 or 30 years, despite the bear market we've had over the last two years, stock prices have gone up quite a bit faster than housing prices.

MM: A couple years ago there was a great deal of talk of the democratization of the stock market. Is that reflected in these figures, or was it an illusion?

EW: I would say it was more of an illusion. What did happen is that the percentage of households with some ownership of stocks, including mutual funds and pension accounts like 401(k)s, did go up very dramatically over the last 20 years. In 1983, only 32 percent of households had some ownership of stock.

By 2001, the share was 51 percent. So there has been much more widespread stock ownership, in terms of number of families.

But a lot of these families have very small stakes in the stock market. In 2001, only 32 percent of households owned more than $10,000 of stock, and only 25 percent of households owned more than $25,000 worth of stock. So a lot of these new stock owners have had relatively small holdings of stock. There hasn't been much dilution in the share of stock owned by the richest 1 or 10 percent. Stock ownership is still heavily concentrated among rich families. The richest 10 percent own 85 percent of all stock. As a result, the stock market boom of the 1990s disproportionately benefited rich families. There were some gains by middle class families, but their average stock holdings were too small to make much difference in their overall wealth.

MM: To what extent is inequality addressed through tax policy?

EW: One reason we have such high levels of inequality, compared to other advanced industrial countries, is because of our tax and, I would add, our social expenditure system. We have much lower taxes than almost every Western European country. And we have a less progressive tax system than almost every Western European country. As a result, the rich in this country manage to retain a much higher share of their income than they do in other countries, and this enables them to accumulate a much higher amount of wealth than the rich in other countries.

Certainly our tax system has helped to stimulate the rise of inequality in this country.

We have a much lower level of income support for poor families than do Western European countries or Canada. Social policy in Europe, Canada and Japan does a lot more to reduce economic disparities created by the marketplace than we do in this country. We have much higher poverty rates than do other advanced industrialized countries.

There are lots of things that we should do to strengthen our income support system. We can expand the Earned Income Tax Credit, which is now a fairly substantial aid to poor families, but which can be improved.

The minimum wage has fallen by about 35 percent in real terms since its peak in 1968. We should think about restoring the minimum wage to where it used to be. That would help a lot of low-income families.

The unemployment insurance system is in a real mess; only about one third of unemployed persons actually get unemployment benefits, either because they don't qualify or because they exhaust their benefits after six months. Typically the replacement rate is about 35 or 40 percent. In the Netherlands, the replacement rate is 80 percent. Our unemployment insurance system is much less generous than in other industrialized countries and can certainly be shored up.

Of course, the welfare system is in a total state of disrepair, since it provides very restrictive coverage. Even before the switchover from AFDC to TANF with the 1996 welfare reform bill, real welfare payments had declined by about 50 percent between 1975 and 1996. So we had already experienced an enormous erosion in welfare benefits...

Edward Wolff is a professor of economics at New York University. He is the author of "Top Heavy: The Increasing Inequality of Wealth in America and What Can Be Done About It," as well as many other books and articles on economic and tax policy. He is managing editor of the Review of Income and Wealth.

Experts say the most important thing that needs to happen before the $700 billion bailout even has a chance of working: Home prices must stop falling. That would send a signal to banks that the worst has passed and it's safe to start doling out money again.

The problem is the lending freeze has made getting a mortgage loan tough for everyone except those with sterling credit. That means it will take several months or longer to pare down the glut of houses built when times were good -- and those that have come on the market because of soaring foreclosures -- before home prices start appreciating.

Housing is a critical component to the U.S. economy and by extension the availability of credit. Roughly one in eight U.S. jobs depends on housing directly or indirectly -- from construction workers to bank loan officers to big brokers on Wall Street. A turnaround in housing prices would boost confidence in the wider economy and, experts hope, goad banks into lending again.

"Housing traditionally does lead the economy through a recovery. I think it's going to be critical for a sustained recovery in this cycle, too," said Gary Thayer, senior economist at Wachovia Securities.

Boy was I a sap.  meanwhile the banks seem to be listening to Steve Miller's "Go On take the Money and Run":

Fears are mounting that many Wall Street banks and financial firms will refuse to participate in the US government's $700bn bail-out package, leaving global markets and world economies in a perilous state for months to come.

'There is a growing feeling that banks ... might instead decide to tough it out,' said Thomas Caldwell, chairman and CEO of Caldwell Financial, a $1bn-plus fund manager...

One of the least attractive elements is a section designed to curb executive pay at banks that participate in the bail-out package. These include limiting stock-related pay and banning 'golden parachutes' for executives.

'I think this hodge-podge of regulations and rules will be enough to put many [chief executives] off participating,' Caldwell said.

Sources close to Goldman Sachs and Merrill Lynch indicated the banks might choose not to participate in the bail-out as there is a growing view on Wall Street that the market may be bottoming out.

So to recap: the bailout hasn't had much of an effect on the credit markets, and the banks don't want to participate.  What was the reason for all this again?

John Mccain Called his wife WHAT??