President Obama likes to say the U.S. economy performs best when it grows “from the middle out.” Unfortunately an exhaustive Federal Reserve study shows middle class entrepreneurs have struggled during this recovery, even as big business thrived. Every three years the Fed conducts a “Survey of Consumer Finances” based on detailed interviews with about 6,500 Americans. A little-noticed topic is ownership of “business equity,”— “small businesses” as distinct from largely companies whose shares are publicly traded. This represents a big chunk of the U.S. economy; about an eighth of families own this type of property, and holdings have an average value of about $1 million (although the median value is much smaller).
The Survey demonstrates that the typical small business fared poorly during the putative “economy recovery” between 2010 and 2013:
- The percentage of families owning “business equity” plunged to 11.7% in 2013 from 13.3% in 2010. This was the biggest three-year decline on record, and 11.7% is the lowest figure on record, well below the average of 13.4% in the prior eight surveys. (The survey has been done every three years since 1989, so there are data for nine years.)
- The median value of “Business Equity” plunged 20%, from $84,400 in 2010 to $67,500 in 2013, which was the second lowest level of the nine years—only 1995 was lower, at $45,500. The average figure for 2001, 2004, 2007, and 2010 was $93,000, or a huge 39% above the 2013 level. (All figures are in 2013 dollars.)
- The median value declined sharply, by more than 30%, in every family income group except the top decile, where the median value rose slightly. Specifically, here is the change in the median value of business equity, from 2010 to 2013, by income group:
- Lowest 20 percentile of family income: median value of equity fell 34.3%.
- 20th to 40th percentile: median value fell 31.7%
- 40th to 60th percentile: median value fell 46%
- 60th to 80th percentile: median value fell 31%
- 80th to 90th percentile: median value fell 37.7%
- Top 10%: median value rose 2.5%
- The story is different when we look at the mean value of families’ holdings of “business equity.” For all families, between 2010 and 2013 the mean value rebounded 15.3% to $973,900. This was still well below the 2007 level of $1,062,500. The mean figure has recovered while the median did not because rich people are doing quite well under President Obama.
- Despite the overall rise in the mean value of business equity, it nevertheless declined sharply for low income groups between 2010 and 2013 even as it rose for richer folks:
- Lowest 20 percentile of family income: mean value of equity fell 11.0%.
- 20th to 40th percentile of family income: mean value fell 32.6%
- 40th to 60th percentile: mean value fell 31.9%
- 60th to 80th percentile: mean value rose 16.5%
- 80th to 90th percentile: mean value rose 25.6%
- Top 10%: mean value rose 13%
Note that people who both A) own “business equity” and B) are in the top 10% of the income distribution are quite rich. The median value of their business equity is $500,000 and the average value is $2,576,000. Of course, this represents only a portion of their total assets; they also own real estate, stocks, bonds, bank accounts, vehicles, etc. Clearly they are among the “millionaires and billionaires” Obama used to vilify until that phrase became too tired and trite even for him. It’s ironic that his supposedly equalitarian policies have hurt the middle class while the rich and well-connected continue to prosper. This is a major reason why hiring has been so weak in this economic expansion.
Copyright Thomas Doerflinger 2014. All Rights Reserved.
Note on Sources: Articles on each of the Surveys of Consumer Finance (done for 1989, 1992, 1995, 1998, 2001, 2004, 2007, 2010, 2013) are available on the Web. But the most convenient source is the 2013 SCF Chartbook, which has consistent information in 2013 dollars for all nine years, including charts and data for all survey items.
