It’s easy for me to turn the pages of my life back to December 2007, at the very beginning of the recession that featured the failure of Wall Street, tightening of the credit market, and damage to worldwide wealth in real property and in the stock market. All I need to do to determine my situation at that time is to look at the end-of-year balance sheet I shared, listing my account balances, as well as the end-of-year income statement.
There is no question that I am better off from a financial perspective today than I was at the start of the recession. I had help over these past few years from a growing business that thrived during the heart of the economic downturn — perhaps even because of the economic downturn. When I shared my end-of-year balance sheet for 2011, it’s clear my finances had improved over the course of the recession, but by the end of last year, I had removed my business finances from my personal finance reports to keep the entities separate.
My personal situation conforms with 32 percent of those surveyed by Pew Research Center in a study intended to chart the financial progress of all self-identified middle-class households in the United States over the past four and a half years. 65 percent of the respondents are not in better financial shape today than they were in December 2007. This set of data is just one piece of the survey which goes on to show that the economic experts that had been warning of the threat of a lost decade since the fallout of the recession were right on the money.
Putting the self-identified “middle-class” term aside, the study looks at the middle-income tier, households earning two-thirds to double the median household income in the United States.
- Continuing a 40-year trend, this middle-income tier shrank in size during the last decade. The tier is now comprised of 51% of all adults, down from 61% in 1971.
- The middle-income tier now earns only 45% of all income earned in the United States, down from 62% in 1971.
- During the most recent decade, the “lost decade,” median income of the middle-income tier dropped 5%.
- During the same time period, median wealth or net worth declined by 28%.
For the most part, I would expect Consumerism Commentary readers, while many will fall into the middle-income tier, might have seen financial success that doesn’t match the results illuminated by this survey from the Pew Research Center. The readership here may not be representative, but the survey does seem to conform with data from the census.
The economic narrative the middle class tells about itself through its responses to the Pew Research survey is consistent with the story told by government economic and demographic trend data. For the half century following World War II, American families enjoyed rising prosperity in every decade — a streak that ended in the decade from 2000 to 2010, when inflation-adjusted family income fell for the middle income as well as for all other income groups, according to U.S. Census Bureau data.
Our assumptions about the United States economy and the stock market seems to stem from this post-war experience. The United States was a powerhouse after World War II, with incredible economic expansion. Perhaps due to recency bias, the general economic and investing community remains convinced that the pace of growth the country experienced in the second half of the twentieth century is sustainable. It’s possible that certain markets globally might produce growth that allows for asset appreciation providing the legendary 8 percent long-term stock market return and economic expansion above the rate of inflation, both expectations we’ve chiseled in stone for our own country, but the goals and expectations we are setting domestically may be well out of line.
The Land of Economic Opportunity may no longer be here in the United States. Sure, there are always opportunities for new businesses and ways for entrepreneurs to start businesses that succeed phenomenally, but there may be better and more diversified opportunities in other developing nations — those whose periods of runaway expansion are yet to come.
This leaves a few questions to consider.
First, are you better off now than you were at the start of the recession? How has your recovery been? It’s one thing if your wealth has recovered to the point it was in December 2007, but have you been able to make up for lost time? Were you not significantly affected by the recession?
Also, do you expect to thrive financially in the United States over the next decade? Even ten years ago, financial advisers were quick to point out the need for building a globally diversified portfolio, adding international stocks into the mix of investments. The hype may have been unnecessary — American companies have long been globally diversifying their business, so investing in American companies who are building their businesses in overseas markets are handling a good portion of that diversification for you.
Nevertheless, if you think that China, India, and Brazil are showing opportunities for the kind of growth the United States had been known for following World War II, if you want the kind of returns the stock market historically promises, you’re going to want to be invested there. Is America still the Land of Opportunity from a wealth perspective?