U.S. Household Wealth at Highest Level Since 2007

I have a digital subscription to the Wall Street Journal and get news alerts from it throughout the day via email. One in particular caught my eye today…”U.S. Household Wealth at Highest Level Since 2007,” said the headline. The linked article further says “…the net worth of U.S. households—the value of homes, stocks and other investments minus debts and other liabilities—rose 1.8% in the fourth quarter of 2012 to $66.07 trillion, the highest level since the final quarter of 2007, when the recession began, the Fed said.” The article went on to say that those with equity and real estate portfolios were beginning to feel flush, thus spending more and hopefully driving the economy forward.

At one level, this is good, as consumer spending is the engine that drives much of the economy, and this will hopefully help to pick up economic activity, decrease unemployment, and generally move the recovery along. However, I find it hard to reconcile this with the incessant assault against the social safety net and the impassioned cries to cut government spending, lest we need to tax the job and wealth creators. The percentage of government spending that goes to “discretionary” items (other than defense, social security, medicare and medicaid) is the lowest in 40 years, and the tax burden has been steadily decreasing over that time. Those with capital and real estate are doing well. If we don’t figure out how to start spending on infrastructure, education and research (as well as supporting a decent social safety net) we be both exacerbating the bimodal distribution of wealth and income as well as diminishing our pool of future capital and growth. I don’t agree with everything Charles Murray says in his book “Coming Apart,” but the phenomenon he vividly describes is what we see around us today.

Capitalism is effective in motivating economic activity (to reformulate Churchill’s statement on democracy, capitalism is the worst option except for all the others that have been tried). However, it needs to be tempered with compassion, and needs to have nets and gutter guards for those who can’t navigate today’s globalized economy as well as others. Government can be a force for good. We all pay taxes for things we would not choose to support, but in the pooling of resources, we can meet many diverse needs. In these days when the 1% (or even the top 5-10%) is seeing portfolio growth, why not support the modest tax increases necessary to provide those failsafes as well as the investment in education needed for the future?

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