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The Asset Price Meltdown and the Wealth of the Middle Class

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  • Edward N. Wolff
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    Abstract

    I find that median wealth plummeted over the years 2007 to 2010, and by 2010 was at its lowest level since 1969. The inequality of net worth, after almost two decades of little movement, was up sharply from 2007 to 2010. Relative indebtedness continued to expand from 2007 to 2010, particularly for the middle class, though the proximate causes were declining net worth and income rather than an increase in absolute indebtedness. In fact, the average debt of the middle class actually fell in real terms by 25 percent. The sharp fall in median wealth and the rise in inequality in the late 2000s are traceable to the high leverage of middle class families in 2007 and the high share of homes in their portfolio. The racial and ethnic disparity in wealth holdings, after remaining more or less stable from 1983 to 2007, widened considerably between 2007 and 2010. Hispanics, in particular, got hammered by the Great Recession in terms of net worth and net equity in their homes. Households under age 45 also got pummeled by the Great Recession, as their relative and absolute wealth declined sharply from 2007 to 2010.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18559.

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    Date of creation: Nov 2012
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    Handle: RePEc:nbr:nberwo:18559

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    1. Kennickell, Arthur B & Woodburn, R Louise, 1999. "Consistent Weight Design for the 1989, 1992 and 1995 SCFs, and the Distribution of Wealth," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 45(2), pages 193-215, June.
    2. Blau, Francine D & Graham, John W, 1990. "Black-White Differences in Wealth and Asset Composition," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 105(2), pages 321-39, May.
    3. Wolff, Edward N, 1979. "The Distributional Effects of the 1969-75 Inflation on Holdings of Household Wealth in the United States," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 25(2), pages 195-207, June.
    4. Edward N. Wolff & Ajit Zacharias & Thomas Masterson, 2009. "Long-Term Trends in the Levy Institute Measure of Economic Well-Being (LIMEW), United States, 1959-2004," Economics Working Paper Archive wp_556, Levy Economics Institute.
    5. Edward N. Wolff, 1998. "Recent Trends in the Size Distribution of Household Wealth," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 131-150, Summer.
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The Asset Price Meltdown and the Wealth of the Middle Class
      by maximorossi in NEP-LTV blog on 2012-12-11 14:05:53
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    Cited by:
    1. Matthew C. Weinzierl, 2014. "Revisiting the Classical View of Benefit-Based Taxation," Harvard Business School Working Papers 14-101, Harvard Business School.
    2. Dominik Menno & Tommaso Oliviero, 2014. "Financial Intermediation, House Prices and the Welfare Effects of the U.S. Great Recession," CSEF Working Papers, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy 373, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    3. Roine, Jesper & Waldenström, Daniel, 2014. "Long run trends in the distribution of income and wealth," Working Paper Series, Center for Fiscal Studies 2014:5, Uppsala University, Department of Economics.
    4. Fourcade, Marion & Healy, Kieran, 2013. "Classification situations: Life-chances in the neoliberal era," Accounting, Organizations and Society, Elsevier, vol. 38(8), pages 559-572.
    5. Emmons, William R. & Noeth, Bryan J., 2013. "Economic vulnerability and financial fragility," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 361-388.
    6. repec:rej:journl:v:16:y:2013:i:47:p:149-164 is not listed on IDEAS
    7. Richard M. Bird & Eric M. Zolt, 2013. "Taxation and Inequality in the Americas: Changing the Fiscal Contract?," International Center for Public Policy Working Paper Series, at AYSPS, GSU, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University paper1322, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    8. J. Michael Collins & John Karl Scholz & Ananth Seshadri, 2013. "The Assets and Liabilities of Cohorts: The Antecedents of Retirement Security," Working Papers, University of Michigan, Michigan Retirement Research Center wp296, University of Michigan, Michigan Retirement Research Center.
    9. Dunn, Lucia & Olsen, Randall, 2014. "US household real net worth through the Great Recession and beyond: Have we recovered?," Economics Letters, Elsevier, vol. 122(2), pages 272-275.

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