URGENT Attention Being Called to a Significant Discrepancy in the Aggregate Net Worth of US Households

Summary
The main purpose is to call URGENT attention to a very significant discrepancy in the values of the aggregate net worth of US households quoted in a recent article by economists/analysts associated with the US Census Bureau (click here to go to the article). On page 2, under Composition of Net Worth, the authors state that the aggregate net worth increased from $28.9 trillion to $40.2 trillion, between 2000 and 2011. This assertion CANNOT be supported and is three to five times HIGHER than the estimates obtained from the data for the number of households and their median and mean net worth values given in Table A-1 of the 2011 US Census Bureau Current Population Report (P60-243). In this Table A-1, the number of households in 2011 was 121,084,000 with a mean net worth of $69,677 and a median net worth of $50,054. This puts the aggregate net worth UN for 2011 at $8.447 trillion. Using rounded figures, UN = NU 1.21 x 108 x 7 x 104 $8.4 x 1012 = $8.4 trillion, a far cry from the reported $40.2 trillion. For 2000, the number of households N = 108,209,000 and the average net worth U = $74,621 with a median net worth of $54,841. The aggregate net worth for 2000 works out to be about $8.075 trillion, a little over $8 trillion or 3.6 times lower. A very significant increase in the number of households and/or the average net worth of a household is required to support the aggregate figures given the USCB authors. No emails contacts are available for the authors cited, hence this URGENT internet posting.
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Updated with Table H-11AR on 3/24/2013 ~ 7:00 PM

After the above document was posted, further research by returning to the US Census Bureau and searching under aggregate household net worth yielded the following table (click here to go the website to the appropriate page Historical Income Tables: Households) for household incomes and number of households. This confirms the earlier values of N and U which to the aggregate net worth of $8.44 trillion in 2011 and $8.07 trillion in 2000, significantly lower than $40.2 T and $28.9T, respectively for 2011 and 2000.

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Posted the following comment on the US Census Bureau website in comments section of another article, entitled Changes in Household Net Worth from 2005 to 2010 by Alfred Gottschalck and Marina Vornovytskyy, Posted June
18, 2012

Vj Laxmanan says: Your comment is awaiting moderation. March 26, 2013 at 1:43 am I have a question about another article, Household Wealth 2000-2011 with Adam Smith as a third co-author. I find the following statement on page 2. Between 2000 and 2011, U.S. aggregate net worth increased from $28.9 trillion to $40.2 trillion. I am curious how these aggregate net worths were arrived at. I checked the number of households data and the median and mean net worths for each household, for these two years (2011 US Census Bureau Current Population Report, P60-243, Table A-1). When I multiply the number of households by the mean net worth I get $8.44 trillion for 2011 and $8.07 trillion for 2000. I would appreciate if you can clarify how the higher figures of $28.9 trillion and $40.2 trillion were arrived at. Reply

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Posted on my Facebook Page on March 24, 2013 (~ 3:45 PM)

Vj Laxmanan

Aggregate Net Worth of US households in 2011 was $40.2 trillion says a recent US Census Bureau Report, which was highlighted in a recent article on CNNMoney (by Tami Luhby, March 22, 2013). The US National Debt is only about $16.75 trillion ($16,749,924,938,094.43, to the penny click here), as of 3/22/2013. What gives? I am trying to get a clarification for this discrepancy between US debt and aggregate net worth of US households. Perhaps, a simple 'error' was made somewhere.

Vj Laxmanan 8 hours ago

http://www.scribd.com/doc/132189331/Average-Net-Worth-of-Billionaires-andOrdinary-US-Households I just uploaded a short article, with graphs, discussing the interesting correlation between the average billionaire net worth and the net worth of ordinary US households.

Vj Laxmanan 1 minute ago (Posted at Forbes Billionaires Issue

Comments section, March 24, 2013, ~4:09 PM) Dear Ms. Luisa Kroll: I was trying to compare the aggregate net worth of all US households with the net worth of US billionaires. And, heres what I found.

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The aggregate Net Worth of US households is $40.2 trillion says a recent US Census Bureau Report, which was highlighted in a recent article on CNNMoney (by Tami Luhby, March 22, 2013). The US Bureau of Public Debt says that the US National Debt is only about $16.75 trillion ($16,749,924,938,094.43, to the penny), as of 3/22/2013. What gives? I am trying to get a clarification for this discrepancy between US debt and aggregate net worth of US households. Perhaps, a simple error was made somewhere. Unfortunately, no email contacts are available for the authors cited. Perhaps, you can do us all a favor and call attention to this matter. When I read about $40.2 trillion US household net worth, I felt very good actually but with further digging into the numbers there is a real problem somewhere. I have also posted an article on this topic, please see link below. http://www.scribd.com/doc/132302227/URGENT-Attention-Being-Calledto-the-Significant-Discrepancy-in-the-Aggregate-Net-Worth-Values-for-USHouseholds Thanks in advance for any assistance you can render. Hey, this is all being done in the interests THE Rich List and the Forbes Billionaire List. Cheers!

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Table 1: US households and net worth data from US Census Bureau

Year 2011, Refs.[1,2] 2011 2010 2009 2008 2007 2006 2005, Refs.[1,2] 2005 2004 2003 2002 2001 2000, Refs.[1,2] 2000 Year Households Table 59 Ref. [5] -117,538 117,181 116,783 ---113,343 -----104,705 Households Table A-1 Ref. [3] -121,084 119,927 117,538 117,181 116,783 116,011 -114,384 113,343 112,000 111,278 109,297 -108,209 Median wealth Ref. [3] (US dollars) $68,828 $50,054 $50,831 $52,195 $52,546 $54,489 $53,768 $108,585 $53,371 $52,788 $52,973 $53,019 53,646 $81,821 $54,841 Mean wealth Ref. [3] (US dollars) -$69,677 $69,518 $71,278 $71,475 $73,337 $74,259 -$72,977 $71,997 $72,232 $72,326 $73,947 -$74,621 Median Net worth, UM (US dollars) $50,054 $53,371 $54,841

Table 2: Discrepancy between the data

Number of Households, N (in 000s) Average Net worth, U = UN/N (US dollars) 121,084 $69,677 114,384 $72,977 108,209 28.9 $74,621 The values below are from Refs. [1] and [2] Aggregate Net Worth, UN ($ trillions) From Ref. [2] 40.2

2011 2005 2000

2011 $68,828 2005 $106,585 2000 $81,821 Data Sources: Table A1, Ref. [3], which starts on page 31 has the required data on number of households N, the mean household income, and the median
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household income for the years 2000-2011. Note the median value of $106,585 is the values given in Ref. [2]. The $108,585 was probably a typo. See also image of the relevant data from Table A-1 attached to Ref. [3]. I compiled the data in Table 1, after a little research since I wanted to study the effect of the number of households N on the reported falling values of the net worth. The number of households was obtained from different tables available at the US Census Bureau website, notably Table A1 of Ref. [3] in the most recent 2011 US Census Bureau report. The figures in Table 1 here are for ALL RACES (click here to get table). However, THREE important points must be stressed before we discuss this data. i) First, the number of households, N, however, does NOT agree with Table 59 of Ref. [5]. The footnotes to the Table A1 of Ref. [3] state that the figures are the revised values. Hence, the values in Ref. [5] will be ignored. Second, the median net worth values do NOT agree with values given by Luhby or in the article by Gottschalck, Vornovytskyy and Smith, the original data source cited by Luhby. This is highlighted in Table 2. Especially noteworthy is the huge discrepancy for the median net worth value for 2005. The reason for the discrepancy is NOT clear from a reading of Ref. [2]. Third, since the aggregate net worth UN = NU, we can compute this figure for 2011 and 2000, the two years for which the values are given in Ref. [2]. For 2011, UN = 121,084,000 x $69,677 1.2 x $7 x 1012 = $8.44 trillion , a far cry from the reported $28.9 trillion. The aggregate net worth figures for 2005 and 2000 work out to only $8.35 trillion and $8.07 trillion (as opposed to $40.2 trillion). Again, the reason for this huge discrepancy is not clear. (Unfortunately, no contact emails are available to permit communication of these findings to the authors of Refs.[1] and [2]. I have used my Facebook page and shared the link to the CNNMoney article to possibly alert Luhby.)

ii)

iii)

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Median Net Worth, M [US dollars]

$56,000 $55,000 $54,000

2000 2005 2001 2007

$53,000 $52,000 $51,000 $50,000 $49,000 106,000

2004

2008

2011
110,000 114,000 118,000 122,000

Number of US households, N [in 000s]

Figure 1: Graphical representation of the median net worth data from the 2011 US Census Bureau Current Population Report (P60-243). Data source Table A-1 of this report. With these caveats, lets consider the how the median and the mean, or average, net worths of US households have changed between 2000 and 2011 as a function of the number of households, N. This is illustrated in graphically in Figures 1 to 3. The number of households N has increased during the period under consideration (2000-2011), from about 108 million households in 2000 to 121 million in 2011. The median net worth was falling between 2000 and 2004 and started increasing between 2004 and 2007, even as the number of households increased. However, after the peak in 2007 there has been a sharp decline and the median net worth has been falling each year, starting 2007. After a sharp drop between 2007 and 2008, the median net worth has been falling at a nearly fixed rate of about $1300 per year, the slope of the straight
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line joining the 2008 and 2011 data points (not shown). This is higher than the rate of $1088 per year, between 2000 and 2001 when the declines began.

Average Net Worth, U = UN/N [US dollars]

$75,000

$74,000

2000 2005

$73,000

$72,000

$71,000

$70,000

2011
$69,000 106.00 110.00 114.00 118.00 122.00

Number of US households, N [millions]

Figure 2: Graphical representation of the mean (or average) net worth data from the 2011 US Census Bureau Current Population Report (P60-243). Data source Table A-1 of this report. The three years, 2000, 2005, and 2011, mentioned in the articles by Luhby and Gottschalck et al are highlighted here.

The mean or average net worth reveal the same pattern as illustrated in Figures 2 and 3. In Figure 2, we consider only the three years 2000, 2005 and 2011. The pattern of decline is similar to that revealed in Figure 1, using the two dashed straight line segments joining the data for the same three years. The data for all years 2000-2011 is plotted in Figure 3.

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Average Net Worth, U = UN/N [US dollars]

$75,000 $74,000 $73,000 $72,000 $71,000 $70,000

2000

2006

2008 2011

$69,000 106.0

108.0

110.0

112.0

114.0

116.0

118.0

120.0

122.0

Number of US households, N [millions]

Figure 3: Graphical representation of the mean (or average) net worth data from the 2011 US Census Bureau Current Population Report (P60-243). Data source Table A-1 of this report.

Unlike the median value, the mean U has the mathematical property U = UN/N or UN = NU. Hence, the graph of UN versus N is also of interest. A changing value of U will imply a changing slope. UN is, of course, the aggregate or the combined net worth. Because of the discrepancies highlighted under point (iii) above, for the extraordinarily high values for the aggregate net worth values for 2000 and 2011 ($28.9 trillion and $40.2 trillion), we have to proceed with caution now. It is not immediately clear why such a high aggregate net worth was reported with the declining average net worth unless there are some serious discrepancies in the number of households as well. Nonetheless, let us look at the graph of the computed values of UN versus N based on the values obtained from Table A-1 of the 2011 USCB report.
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Aggregate Net Worth, UN [$, trillions]

8.700

2006
8.600 8.500 8.400 8.300 8.200 8.100 8.000 106.0

2011

2008

2002
108.0 110.0 112.0 114.0 116.0 118.0 120.0 122.0

Number of US households, N [millions]

Figure 4: Graphical representation of the COMPUTED values of the aggregate (or combined total) net worth for all US households for the period 2000-2011 based on data from the Table A-1 of the 2011 US Census Bureau Current Population Report (P60-243). Notice the relatively constant rate of increase of the aggregate net worth of US households between 2002 and 2006, before the precipitous drop just before the financial crisis of 2008. The implications are this will be discussed separately in a future article.

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Reference List
1. Where American stash their Wealth? by Tami Luhby, March 22, 2013, http://economy.money.cnn.com/2013/03/22/americanhouseholdwealth/?source=cnn_bin 2. Household Wealth in the US: 2000 to 2011, by Alfred Gottschalck, Marina Vornovytskyy and Adam Smith, chttp://www.census.gov/people/wealth/files/Wealth%20Highlights%20 2011.pdf The median net worth values for 2000, 2005 and 2011 are also given here. The dollar amounts are in constant 2011 dollars with inflationadjustment factors. Between 2000 and 2011, aggregate net worth of $28.9 trillion to $40.2 trillion. 3. Income, Poverty, and Health Insurance Coverage in the United States: 2011, Current Population Reports, P60-243, Published by US Census Bureau, http://www.census.gov/prod/2012pubs/p60-243.pdf Table A1, which starts on page 31 has the required data on number of households N, the mean household income, and the median household income for the years 2000-2011, with detailed breakdown by races gender, and age (click here to get table); see the image of the relevant data extracted below.

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4. State and County Quick Facts (Google search US Census Bureau number of households http://quickfacts.census.gov/qfd/states/00000.html) 2012 US population estimate 313,914,040 and 2010 population 308,745,538. The number of households, 2007-2011, is given as 114,761,350 and the average persons per household is given as 2.60. The median household income from 2007-2011 is given as $52,762. 5. US Census Bureau: 2012 Statistical Abstract (Google search for number of households) click here to go to the table http://www.census.gov/compendia/statab/cats/population/households_f amilies_group_quarters.html The number of households given in Table 59 here does not agree with the figures given in Ref. [3], as seen in the image for 2000 the number of households per Ref. [3] is 108,209 versus 104, 705 given here. Footnote in Ref. [3] says the data has been revised. Hence, Ref. [3] values are used.

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About the author V. Laxmanan, Sc. D.

The author obtained his Bachelors degree (B. E.) in Mechanical Engineering from the University of Poona and his Masters degree (M. E.), also in Mechanical Engineering, from the Indian Institute of Science, Bangalore, followed by a Masters (S. M.) and Doctoral (Sc. D.) degrees in Materials Engineering from the Massachusetts Institute of Technology, Cambridge, MA, USA. He then spent his entire professional career at leading US research institutions (MIT, Allied Chemical Corporate R & D, now part of Honeywell, NASA, Case Western Reserve University (CWRU), and General Motors Research and Development Center in Warren, MI). He holds four patents in materials processing, has co-authored two books and published several scientific papers in leading peer-reviewed international journals. His expertise includes developing simple mathematical models to explain the behavior of complex systems. While at NASA and CWRU, he was responsible for developing material processing experiments to be performed aboard the space shuttle and developed a simple mathematical model to explain the growth Christmas-tree, or snowflake, like structures (called dendrites) widely observed in many types of liquid-to-solid phase transformations (e.g., freezing of all commercial metals and alloys, freezing of water, and, yes, production of snowflakes!). This led to a simple model to explain the growth of dendritic structures in both the groundbased experiments and in the space shuttle experiments. More recently, he has been interested in the analysis of the large volumes of data from financial and economic systems and has developed what may be called the Quantum Business Model (QBM). This extends (to financial and economic systems) the mathematical arguments used by Max Planck to develop quantum physics using the analogy Energy = Money, i.e., energy in physics is like money in economics. Einstein applied Plancks ideas to describe the photoelectric effect (by treating light as being composed of particles called photons, each with the fixed quantum of energy conceived by Planck). The mathematical law deduced by Planck, referred to here as the generalized power-exponential law, might
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actually have many applications far beyond blackbody radiation studies where it was first conceived. Einsteins photoelectric law is a simple linear law and was deduced from Plancks non-linear law for describing blackbody radiation. It appears that financial and economic systems can be modeled using a similar approach. Finance, business, economics and management sciences now essentially seem to operate like astronomy and physics before the advent of Kepler and Newton. Finally, during my professional career, I also twice had the opportunity and great honor to make presentations to two Nobel laureates: first at NASA to Prof. Robert Schrieffer (1972 Physics Nobel Prize), who was the Chairman of the Schrieffer Committee appointed to review NASAs space flight experiments (following the loss of the space shuttle Challenger on January 28, 1986) and second at GM Research Labs to Prof. Robert Solow (1987 Nobel Prize in economics), who was Chairman of Corporate Research Review Committee, appointed by GM corporate management.

Cover page of AirTran 2000 Annual Report

Can you see that plane flying above the tall tree tops that make a nearly perfect circle? It requires a great deal of imagination to see and to photograph it.

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