Good news, that is.
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Getting richer: As American as apple pie
by NEIL REYNOLDS
OTTAWA — The United States conducted its first economic census in 1810, three years short of 200 years ago. The Treasury-appointed marshals who did it determined that there were one million families living in the country, and one million slaves. They calculated that the average worth of these households -- lands, buildings, furnishings, tools -- was $350 (U.S.). They calculated that the average worth of slaves was $400. Entering the 19th century, the country's million slaves were worth more than its million families.
On further analysis, the Treasury Department deemed the American hinterlands and forests were worth another $1,500 per family, the country's roads and canals another $750. Thus it found the net wealth of the average American family was $3,000 -- and that the wealth of the nation, all in, was $3-billion.
Each year now, in a report filed with the annual budget, the U.S. government reports the rise or fall in this number, which it calls the country's "net stock of wealth." At the start of 2005, net wealth in the U.S. verged on $100-trillion, and soon surpassed that figure for the first time. At the close of 2006, it exceeded $108-trillion -- an increase of 8 per cent in two years. In these most recent 24 months, American net wealth increased more than $330-billion a month.
Driven by higher productivity, American net wealth has been increasing at an accelerating pace in the past decade. The annual increase since 1960 (in real dollar terms) averaged 3.7 per cent. The annual increase since 1995 has averaged 4 per cent, a growth rate greater than GDP. America's net wealth is on a roll. In 1960, it equalled 682 per cent of GDP. In 1995, it equalled 740 per cent. In 2000, it equalled 750 per cent. In 2006, it equalled 810 per cent, by far the highest level in U.S. history.
Expressed on a per capita basis, U.S. net wealth has more than tripled (again in constant 2006 dollars) since 1960, when it stood at $110,000. In 1990, it reached $256,000; in 2000, $306,000; in 2006, $360,000. It's hard to translate the 1810 census numbers to complete the comparison -- how do you precisely compare family statistics in 1810 with per capita statistics in 2006? Assuming that families in 1810 had five members, though, U.S. national wealth would have been $600 per capita. By this calculation, American net wealth has increased 600-fold in 196 years.
The federal government itself owns only a fraction of U.S. net wealth. Yet these assets are also growing at a rapid clip and set a record high last year at $4-trillion, twice as much as in 1960 and equal to 30 per cent of GDP. The government's ownership of mineral rights, for example, is conservatively evaluated at $1-trillion, twice as much as a decade or so ago. (The government's military capital, on the other hand, has declined significantly in the past 40 years. In the 1960s, military assets -- all the planes, tanks and ships, all the land and buildings -- were valued at more than $1-trillion, or 90 per cent of federal assets; they are now valued at $730-billion, or less than 30 per cent of federal assets.) Although still rising in absolute dollars, these federal assets represent a diminishing percentage of the nation's net stock of wealth. In 1960, federal-funded capital represented 11.9 per cent of net national wealth. By 1980, it had fallen to 8.7 per cent; by 1990 to 8.1 per cent; by 2000 to 7 per cent.
The federal government, in other words, plays a smaller and smaller role in the creation and accumulation of wealth. All this abundant wealth is relevant on a very practical level -- on U.S. debt and the country's capacity to finance it. The fact is that U.S. foreign debt, although never higher and still rising, is extremely modest in comparison with the country's net wealth. U.S. foreign debt hasn't harmed the creditworthiness of the country in the slightest. Long-term U.S. interest rates, from 2004 through 2006, have remained lower than any time since the 1960s. The U.S. remains one of the safest places on earth for capital investment.
The U.S. foreign trade deficit hit $760-billion last year, a number that represents 6 per cent of GDP and, at first glance, appears ominous. Yet it's a fraction of 1 per cent of the country's net national wealth. It represents two month's worth of gains in this wealth.
Yes, things can always change, can always go wrong. Given another century of sustained economic growth, though, American net wealth will exit the trillions of dollars and enter the quadrillions. From this perspective, billions will be mere pennies on the sidewalk.
nreynolds@xplornet.com
SOURCE - The Globe and Mail, Friday, March 9, 2007, Page B2
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