Dean Baker goes after Pew this morning. His problem is with a Pew report that determined how much wealth different age groups had. This has been widely reported and Baker has complained about it before. The problem is not the numbers, which Baker agrees with. The problem is the implication that our seniors are stinking rich at the expense of the young.
The Pew report says that the median wealth of people over 65 is $170,000. This includes all of their wealth: house, car, furniture, savings, stocks, whatever. As Baker points out, this is a little less than the value of the average home in the United States: $180,000. So if these people sold everything they owned, they could reduce their mortgage to $10,000. In that case they would have nothing else, other than their Social Security checks. This doesn’t sound like the definition of wealthy.
There is a ridiculous contrast to this. When discussing raising taxes on the wealthy, we are told that making $250,000 per year is not wealthy. In fact, if we look at the Fiscal Cliff deal, apparently even $400,000 per year is middle class. How is it that reports manage the cognitive dissonance that says that a quarter million a year is middle class while a low mortgage and $1200 per month is wealthy? I think I know: reporters aren’t retired. Most of the people we hear from are in Washington in high profile (and well paid) positions. They know people would make these kinds of salaries and so it doesn’t seem unusual. Most of them do not rub elbows with the 40% of retired Americans who live solely off Social Security. Anyway, as a lump non-taxed sum, $170,000 sounds pretty good; I don’t think it occurs to them that it is all the wealth these people have.
The problem with making a big deal about seniors’ wealth is that it is used as a reason to cut their benefits, as though that will help the young. What the young need is a good economy so they can get good jobs. But cutting government programs for seniors will just hurt the economy and make it harder on young people. The deficit scolds are forever talking about all the debt we will leave to future generations. But the future generations are here now and what they most need is a job.
Yesterday, I was invited by Fix the Debt to write a letter about my fears about the debt. I used the opportunity to tell them that my biggest fear was that groups like them would destroy the economy. I also pointed out that they don’t care about the coming generations. They care about the rich now. The deficit scolds are all about keeping inflation low and the dollar high. These are the policies that the rich want. They what their piles of money to keep their value, and these two things do that. The rest of us want reasonably high inflation so that our debts will go down in value. We also want a weak dollar so that other countries buy things from us and thus we have jobs.
Pew’s report about the “affluent old” is part of this push to destroy the social safety net. It even notes that the total wealth of the young has decreased while the elderly’s has increased. So again: this is pushing things that the rich want in the name of the young. The whole campaign is bad enough. The fact that they use the young as the reason for their concern is disingenuous and repugnant.
I am currently being pushed from several sides to take out a mortgage. And it strikes me as a stone scam. Not that having to pay my dickwad landlord (may Allah’s 1000 curses rain down upon him) isn’t also a scam, but mortgage "investments" aren’t investments at all.
If you buy a zillion shares of Google when it’s valued at $1 per share and sell them when it’s valued at $100 per share, you just made a hundred zillion dollars. Good for you.
Real estate, if you live in it instead of trade in it, isn’t that kind of investment. When you sell those zillion Google shares you don’t need to buy a zillion shares of Yahoo. When you sell a home you live in, you need to buy a new home. Real estate values tend to rise pretty much across-the-board in any region, so unless you take your closing price in Shangri-La and buy a new place in Oompa Loompa land, you really haven’t made a dime.
I keep trying to explain this to people and they keep staring at me like my head is missing. "But mortgage rates are so low!" OK. Sure. If one takes out a 20-year loan at five percent and home values rise by six percent over those 20 years, you’ve "made" money. You still need a place to live! And meanwhile, you paid the bank a ton.*
That median $170K is imaginary. If you give the house to your kids before you get sick, it does amount to something. Once you get sick (and you will, if you don’t die quickly) that $170K will be sucked up by our health system like an anteater with a coke habit. It’s gone in months. And once it’s gone, Medicare covers the rest.
Not that there aren’t benefits to home ownership (giving it away to others is definitely a plus.) But the idea that real estate, which nearly every American believes to be their way of getting into the wealth game, represents some kind of savvy investment is pure fantasy. Rich people invest. Poor people do not. The casino always wins, always.
*Another thing I’m told is how much one can "write off" on taxes because of the mortgage interest deduction. It’s a deduction — NOT a credit! A tax credit of $1000 means you pay $1000 less or get $1000 more refunded. A deduction means you subtract $1000 from your taxable income. Your savings are then dependent on your tax bracket. Plus, itemizing deductions means you’re deducting state taxes paid on your federal return, which does not apply to your state return — oh, I give up. You probably know this stuff, but it’s hard to explain to most Americans who believe "real estate=investing in things just like the big boys do!" as an article of faith.
@JMF – Actually, you only made 99 zillion dollars… ;-)
On home ownership, you are right about it. The truth is that homes appreciate at the rate of inflation. They are [i]not[/i] good investments. However, you do have to live somewhere. Not only are interest rates low, house prices are probably below their true market value. And their is a sizable subsidy to you from the government. So if you have any interest in ever buying a home, now is the time to do it if you can.
Really what you need to look at is how much more (on the monthly basis) you are going to pay to buy than to rent. I think you will find that even with property taxes and upkeep (That can be enormous!) you will easily be ahead within 5 years by buying.
Having said all that, I’m not that keen on home ownership. I think we have made much too big a deal of it here in the US. I used to be a home owner. (My estranged wife still is.) And it doesn’t matter to me at all. In fact, I didn’t particularly like home ownership. It was a pain. Still, if I had the money now, I would probably do it.