I have been writing about America’s two economies for years, as for example here. I have also been writing about related subjects, such as the decline of the white working class and the trends driving Trump.
Recently the well-known investor Ray Dalio, Chairman & Chief Investment Officer at Bridgewater Associates, also wrote about these subjects. I encourage you to read his entire article here and provide an excerpt below:
The Two Economies: The Top 40% and the Bottom 60%
To understand what’s going on in “the economy,” it is a serious mistake to look at average statistics. This is because the wealth and income skews are so great that average statistics no longer reflect the conditions of the average man. For example, the wealth of the top one-tenth of 1% of the population is about equal to that of the bottom 90% of the population, which is the same sort of wealth gap that existed during the 1935-40 period.
To give you a sense of what the picture below the averages looks like, we broke the economy into two economies – that of the top 40% and that of the bottom 60%. We then observed how conditions of the majority of Americans (the bottom 60%) are different from the conditions of those of the top 40%, as well as different from the picture conveyed by the average statistics. We focused especially on the bottom 60% because that’s where the majority of Americans are and because the picture of this economy is not apparent to most people in the top 40%.
We will start off looking at income and the economic picture and then turn to some related lifestyle and political differences.
- There has been no growth in earned income, and income and wealth gaps have grown and are enormous. Since 1980, median household real incomes have been about flat, and the average household in the top 40% earns four times more than the average household in the bottom 60%. While they’ve experienced some growth recently, real incomes have been flat to down slightly for the average household in the bottom 60% since 1980 (while they have been up for the top 40%). Those in the top 40% now have on average 10 times as much wealth as those in the bottom 60%. That is up from six times as much in 1980.
- Only about a third of the bottom 60% saves any of its income (in cash or financial assets). As a result, according to a recent Federal Reserve study, most people in this group would struggle to raise $400 in an emergency.
- The rates of income and wealth changes of the middle class have been worse than those changes in any of the other groups, once you account for the social safety net and taxes.
The middle class has been especially hard-hit by manufacturing jobs declining about 30% since 1997.
- Those in the top 40% have benefited disproportionately from changes in asset values relative to those in the bottom 60%, because of their asset and liability mix.
The increasing disparity in financial conditions is a major cause of the slowing of growth, because those in lower income/wealth groups have higher propensities to spend than those in higher income/wealth groups.
- Retirement savings for the bottom 60% are not even close to adequate and aren’t much improved as the economy and markets have recovered. Only about a third of families in the bottom 60% have retirement savings accounts—e.g., pensions, 401(k)s—which average less than $20,000. Further, as we do projections of pension finance, it appears unlikely that pension retirement benefits will be fully met.
- Death rates are rising and mental and physical health is deteriorating for those in the bottom 60%. For those in the bottom 60%, premature deaths are up by about 20% since 2000. The biggest contributors to that change are an increase in deaths by drugs/poisoning (up two times since 2000) and an increase in suicides (up over 50% since 2000). The odds of premature death for those in the bottom 60% between the ages of 35 and 64 are more than two times higher, compared to those in the top 40%.
- The US is just about the only major industrialized country with flat/slightly rising death rates.
The top 40% spend four times more on education than the bottom 60%. This creates a self-perpetuating problem, because those at the bottom get a much worse education than those at the top.
- The bottom 60% increasingly believe others will take advantage of them: the percentage is 49% today versus 40% in 1990.
- While conditions for the lowest income groups have long been bad, conditions of non-college-educated whites (especially males) have deteriorated significantly over the past 30 years or so. This is the group that swung most strongly to help elect President Trump. More specifically:
- Now, the average household income for main income earners without a college degree is half that of the average college graduate,
- The share of whites without college degrees who describe themselves as “not too happy” has doubled since 1990, from 9% to 18%, while for those with college degrees it has remained flat, at around 7%.
- Since 1980, divorce rates have more than doubled among middle-age whites without college degrees, from 11% to 23%.
- Prime working-age white males have given up looking for work in record numbers; the number of prime-age white men without college degrees not in the labor force has increased from 7% to 15% since 1980.
- More broadly, men ages 21 to 30 spend an average of three fewer hours a week working than they did a decade ago; most of that time is spent playing video games.
- The probability of premature death for whites without college degrees between the ages of 35 and 64 is nearly three times higher than it is for whites with college degrees, and the rate of premature deaths is up by about 25% since 2000 (while it is down for virtually every other demographic group). The US white population is unique among large groups in the developed world for seeing increases in their death rates.
The polarity in economics and living standards is contributing to greater political polarity. It is also leading to reduced trust and confidence in government, financial institutions, and the media, which is at or near 35-year lows.
Average statistics camouflage what is happening in the economy, which could lead to dangerous miscalculations, most importantly by policy makers. We expect the stress between the two economies to intensify over the next 5 to 10 years because of changes in demographics that make it likely that pension, healthcare, and debt promises will become increasingly difficult to meet (see “The Coming Big Squeeze”) and because the effects of technological changes on employment and the wealth gap are likely to intensify.
As I wrote six years ago in my article cited at the top: “The trends that are creating and sustaining two economies in the US have been building for years and seem to me to be so strong as perhaps impervious to amelioration. The ‘two economies model’ meets my test of sustainability: being supported and reinforced by other fundamental social, demographic, political and technological trends (or at least not being incompatible with them). It is hard to foresee how the ‘two economies model’ can be reversed or even tempered, though it is a path that will leave tens of millions of Americans behind even as the ‘working’ economy improves.”
But if solutions are to be found, they will most likely come from the local level. As I outline in my presentation, “Our Extraordinary Future,” devolution and decentralization are necessary, desirable and likely. How do I know? TINA told me. Who is TINA? There Is No Alternative!
Please contact me if your organization would be interested in hearing my analysis!