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Notes From the Fieldby Martin Weil

July 29, 2014

So Warren Buffett Walks Into a Bar…

Ten working class guys are in a bar when Warren walks in, goes the tale. As soon as Buffett crosses the bar’s threshold, the average person’s wealth in the room skyrockets.

This is a classic example of how statistics can be used to make utterly misleading statements. It is preamble to this more than a little shocking bit of data from Marginal Revolution

The inflation-adjusted net worth for the typical household was $87,992 in 2003. Ten years later, it was only $56,335, or a 36 percent decline, according to a study financed by the Russell Sage Foundation. Those are the figures for a household at the median point in the wealth distribution — the level at which there are an equal number of households whose worth is higher and lower.

The median is the statistical measure that provides real insight here regarding how the typical American household’s wealth has fared. Average wealth and income in the US has certainly risen since 2003. But this information is of no value if we are trying to explain how the typical household is doing. Average in this case is not “average.”

Much like Warren walking into the bar, this rise in average income is a consequence not of rising wealth across the board, but of extreme wealth increases at the very highest end of the spectrum. This rising tide has not raised all boats this time around and most people affected “get” this fact. The typical household, as shown by this study, has not benefited from an increase in wealth at all, but has instead suffered a substantial decline.

It is data points such as these that betray for me the factors underlying the ongoing discontent with the current economy in the US.

inflation-adjusted net worth for the typical household was $87,992 in 2003. Ten years later, it was only $56,335, or a 36 percent decline, according to a study financed by the Russell Sage Foundation. Those are the figures for a household at the median point in the wealth distribution — the level at which there are an equal number of households whose worth is higher and lower. – See more at: http://marginalrevolution.com/marginalrevolution/2014/07/were-not-as-wealthy-as-we-thought-we-were.html#sthash.xK1atyzm.dpuf
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