Comment: Not Rich, Not Poor

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Not Rich, Not Poor

Comment by Mark Lacter

The charade is over. There are the truly rich and there’s everyone else.

As a monster stock market veers dangerously out of control like an amusement park fun ride that’s been ripped from its foundation it’s painfully clear that wealth on paper is not the same as wealth in the bank. At times like these, it’s easy to separate the renters from the owners.

There are those with skillful financial managers who had the good sense to get their clients out of equities in advance of the crash. Then there’s the rest of us, relying on amateur instincts or whatever the guy on CNBC happens to be pushing and now greeting each day with a dry mouth, sour stomach and a revised view of early retirement.

It’s a profound reversal of a decade or more of wealth democratization, in which the middle and upper classes were often indistinguishable. Thus, you had Hollywood billionaire and man-about-town Steve Bing looking like he just got off his factory shift with scruffy jeans and well-worn T-shirt and the Westside whippersnapper eating into his paycheck to cover the leased Mercedes, the Matsuhisa lunches and the $3,000-a-month apartment.

Middle-classers bought into the illusion thanks to the magic of credit cards and an ever-rising stock market that made us feel as if we could afford that extra $700 suit.

It wasn’t all hocus-pocus. A Federal Reserve Board survey found that the median net worth of a typical American family including cash savings, equity from homes, stocks, bonds and other investments jumped from $56,500 in 1992 to $71,600 in 1998. But when the Fed calculated average net worth, which skews higher because it includes the highest earners, the numbers went from $212,700 in 1992 to $282,500 in 1998.

The rich, in other words, got a lot richer, while everyone else did better, but not proportionately so.

Which, frankly, is the way it’s supposed to work. Wealth is always distributed unequally. Writing in the National Journal, economist John Maggs reminds us of Adam Smith’s declarations in 1776 about how the accumulation of wealth improves a nation’s well being. The nations that produce more than they need will experience rising living standards for all. “Thus in England, which in 1776 had many more indolent rich people than did the hard-working American colonies,” writes Maggs, “unskilled laborers had higher living standards than those in most other places.”

In recent days, our instant chroniclers have been quick to invoke the excesses of Rockefeller, Carnegie and J.P. Morgan in pointing out how then, as now, working stiffs wind up paying the price. But that’s not the complete story.

For all the populist fervor in the early 1900s, it was big business that brought us prosperity over the next three decades. In 1900, only 3 percent of American homes had electric lights and 15 percent had flush toilets. By 1930, those numbers jumped to 67 percent and 50 percent, respectively. That year, one of four households owned a washing machine and six in 10 owned a car. And babies born in 1930 were bigger and healthier than those born in 1900.

Nothing would upend those advances not the market crash, not the Great Depression, not World War II. It wasn’t very pretty and it undeniably wasn’t fair (many of the rich found ways to stay rich), but in the end it was the marketplace, along with help from Washington, that got things back on track.

Then, as now, you didn’t have to be rich to prosper.

Mark Lacter is editor of the Business Journal. He can be reached at

[email protected].

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