Like many, I’ve been struck by the juxtaposition of the financial collapse of the past several months and the waning days of the Bush administration - both symbolizing a kind of massive systems failure. It seems to boil down to a failure of elites. More specifically, a lack of accountability for failed elites. So rather than just stay annoyed at the destruction wrought, I’d thought I’d look at that broader precondition for elite status and malfeasance: inequality. I’ll consider economic inequality in the Los Angeles region. This first entry will summarize distribution of wealth. Time willing, I’ll write a second on why inequality of ownership of wealth matters- when it’s harmful as opposed to when it’s merely a spectacle. A third, drawing on work by my colleague Peter Dreier, will discuss whether local/ regional policies are available to address inequality (or if state and federal action is the primary antidote). I also plan to include a ‘bonus’ post in the series, kind of a side bar on the sources of wealth of L.A.’s ultra rich and what implications that may have.
To illustrate distribution of wealth and inequality, I’m going to focus on assets (net worth) rather than income. However, income is increasingly unequally distributed in the United States, with the share going to the top ten percent of wage earners jumping from approximately 33 percent (a figure that had held more or less steady between WW2 and the election of Ronald Reagan as president in the early 1980s) to 50 percent or more by 2006. These trends are getting more extreme. Between 2002 and 2006, the top 1 percent of earners accounted for almost 75 percent of overall income gains. When we were writing the Next Los Angeles, I remember that research by Neeta Fogg and Paul Harrington had shown that income inequality was approximately 30 percent greater in the Los Angeles region as in the country as a whole.
Los Angeles County is the most populous county in the nation. As fits its reputation as a land of extremes, it has the highest number of millionaires in the country but also the largest numbers of poor people and largest number of homeless. It’s not easy to figure out how much money someone is worth. Fascination with the ultra wealthy means that there are annual calculations of the region’s hugest fortunes as well as the assets of the areas’ millionaires. There isn’t equivalent data for the rest of us. The most recent census bureau measurement of net worth are from 2002 and they are national rather than broken down by county or city. So I’ve been forced to estimate the 2007 net worth of the bottom three quintiles of residents of the county. Americans’ net rose between 2002 and 2007, but most of the gains went to the wealthy. LA county has slightly higher average income than the nation as a whole and real estate values here are higher than the rest of the county. On the other hand, the County has significantly higher proportion of Latino residents than the U.S. and Latino households are generally younger than and have a much lower net worth than white household. Also, approximately half of households in LA County own their residence (the largest share of most people’s net worth) as compared to three quarters nationwide. Given these competing trends, I’ve made the back of the envelope assumption that the 2007 net worth of the bottom quintile of county households is 20 percent less than the equivalent national average in 2002; that the second quintile is the same as national 2002 figures; and that the third quintile has a net worth 20 percent higher than 2002 national stats.
As these two charts show, however, inequalities in net worth in LA is so extreme that, even if my estimates are way off, the overall picture of disparity wouldn’t change much. The first chart compares the net worth of the county’s richest 50 people with that of the bottom 60 percent of the population.
The next chart is in some ways even more shocking. Even if we exclude a household’s primary residence (the value of which, in this region, doubled or more than doubled between 2002 and 2007), the wealth of those with at least a million dollars (millionaires as defined by the British market researcher TNS Financial Services - again excluding the value of the house they live in) is approximately 100 times greater than the bottom 60 percent of households. The County’s lower and middle income families basically don’t even show up on the chart, the scale of the inequality is so vast.
Of course, this data just predates the financial collapse of late 2008, so everyone’s assets will have shrunken. Consider these charts as snapshots near the peak of inequality.