Only the rich got richer in '80s, Fed concludes During Reagan era, poor lost ground

January 07, 1992|By James Risen | James Risen,Los Angeles Times

WASHINGTON -- In a significant government study of the economic consequences of the Reagan era to be released today, the Federal Reserve Board says the rich got richer while the middle class stagnated during the unprecedented boom of the past decade.

The study -- the Fed's first, sweeping attempt to officially study changes in the distribution of wealth during the 1980s -- found that the incomes of affluent Americans rose more quickly throughout the decade than those of middle Americans. The disparity between the wealthiest Americans and the rest of the nation was even more evident in a comparison based on net worth, the Fed found.

Among whites, family incomes and net worth rose, while they fell among blacks and Latinos.

Although liberal critics of the Reagan and Bush administrations have reached similar conclusions, the Fed's study is the first by the independent agency and is likely to lend credence to charges that White House policies have favored the rich in recent years.

The Fed itself does not assign blame for the shift to the economic policies of the Reagan administration. But outside economists noted yesterday that the agency's data offer the most comprehensive look at how the past decade brought about a dramatic transfer of wealth to the upper tier of Americans.

The Fed, which based many of the study's conclusions on periodic surveys of the same individual families that were followed from 1983 to 1989, found that incomes of those families above the national median rose faster than those in the bottom half of the income ladder. The study found that average family income, adjusted for inflation, rose from $33,400 to $35,700 in the six years. The affluent accounted for most of the gain.

"The distribution of family income became somewhat more concentrated among families with higher income," the Fed study says.

But the study's most striking findings concerned the changes it found in the distribution of wealth, in terms of financial, real estate and other assets owned by American families. The net worth -- the difference between families' total assets and their total debts -- rose much more dramatically for upper-income Americans than for others.

The rise in net worth of well-to-do Americans is attributed to the stock market boom, high interest rates paid on certificates of deposit and similar investments, and to the explosion in home prices throughout much of the '80s.

The study is likely to further fuel the debate between liberal and conservative economists regarding the economic legacy of the Reagan era.

"People at the top in America had huge capital gains in the 1980s," said Barry Bosworth, a liberal economist at the Brookings Institution in Washington. "America in the 1980s became a country of widening inequality in wealth. That was unusual because we hadn't seen that kind of trend in the 1960s or 1970s."

"The middle class shrank in the 1980s because more people moved into the upper-income levels," argued William Niskanen, a former Reagan administration policy-maker and an economist at the Cato Institute, a conservative Washington think tank. "The middle-class squeeze is a misnomer."

Still, the Fed's data provide some fresh ammunition for those economists who have argued that wealth in America has become more concentrated among the wealthy.

"The most significant aspect of this study is not the income distribution, which we knew about, but the wealth and net worth data, which we haven't had before," Mr. Bosworth said.

For example, the net worth of a family earning more than $50,000 rose from $176,100 in 1983 to $185,600 six years later, while the net worth of the average poor family earning less than $10,000 per year fell from $3,800 to $2,300. The net worth for middle-class families, meanwhile, hardly changed; for those earning between $20,000 and $30,000, the average net worth went from $36,900 to $37,000 during the period.

Many of the gains for the wealthy came in the form of financial assets -- checking and savings accounts, certificates of deposit, and stocks and bonds.

The wealth gap between whites and minorities became especially acute in the 1980s. In 1983, the average white family held assets of $5,800, while the average minority family owned just $1,100. By 1989, whites owned $11,500, with minorities holding on average just $2,000.

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