Even softball questions are sometimes revealing. Speaking on the economy this week before a carefully screened audience, the President was asked about his vision for American 25 years down the road. One of the things Mr. Bush said he would most like to be remembered for is “promoting ownership” in America:
“I want people to own something. I want people owning their own small business. I want people owning their own homes. I think people ought to be allowed to own their own health care account and make decisions for what is best for them.”
Which leads to the question: Do we have an ownership society in America?
The answer is mixed. Yes, record numbers of Americans own a home. And homeownership is the largest asset, in fact, the only asset for most American families. By this measure, we do have an ownership society.
Unfortunately, millions of American households have stretched to the max to buy their homes. Many have taken out interest-only and subprime loans at low introductory rates that will reset in coming years at what are likely to be higher interest rates. Regulators are bracing for the $1 trillion in adjustable mortgage debt that comes due next year. The fear is there will be a wave of foreclosures when borrowers face the “payment shock” when their mortgage rates reset. We may soon see many families fall out of the ownership society in coming years.
What about 401(k)s and the like? Lots of people are doing quite well, thank you very much. And that is great. Fidelity Investments reports the average account under its management is now worth $61,000. That’s real ownership.
But is it enough? The personal savings rate in this country is negative. That means we are spending more than we make. Companies are busily shutting down their old pension plans. To replace those benefits, Sylvester Schieber at Watson Wyatt tells me workers would need to be saving about 15% of their salaries. How many people do you know who save 15% of their salaries every year? I don’t know many.
It also seems common sense to say that in order to foster an ownership society, a broad swath of American society needs to make enough money to be able to afford to own something. And here the trend towards growing income inequality is disturbing. In a new paper for the Brookings Institution, Ian Dew-Becker and Robert Gordon surveyed IRS data from 1966 through 2001. They totaled the income gains over the last 35 years and found 13,000 of the very wealthiest households in the country took home more than the bottom 26 million households combined. Put it another way: over the last 35 years, a very wealthy family in the United States pulled down income gains 2,000 times greater than a family in the bottom 20%.
Ownership is a laudable goal. Unfortunately, some observers say, the distribution of ownership in this country is increasingly unequal.
