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Americans are earning more income from their investments than ever before.

Here’s the data from the Wall Street Journal:

Americans in the first quarter earned about $3.7 trillion from interest and dividends at a seasonally adjusted annual rate, according to the Commerce Department, up roughly $770 billion from four years earlier.

That’s a whole lot of passive income.

People who own financial assets are sitting pretty right now. Unfortunately, the majority of those assets reside in the hands of the wealthy:

The rich are getting richer. That’s a fact.

But that doesn’t mean people on the lower end of the wealth spectrum are being completely left behind.

In fact, the pandemic gains to lower income and net worth Americans are some of the highest on record.

Here is the growth in net worth by wealth percentile from the start of 2020 through the end of 2023:

Over this four-year period, the bottom 50% saw the highest net worth growth of any group by far.

To be fair, that growth is coming off a much smaller base than the wealthier cohorts.

The net worth of the bottom 50% was decimated in the Great Financial Crisis but look at the sharp increase since 2020:

We’re not ending wealth inequality here, but the bottom 50% is in a much better financial position, even after accounting for inflation.

The bottom 50% also has a lot more cash in the bank:

Checkable deposits are up nearly 3x since the start of the pandemic.

There have been substantial income gains for the bottom half as well.

The Economist highlighted a new paper that sheds light on how incomes have changed during this period:

In a recent paper, Mr. Autor and colleagues demonstrate that tight American labour markets are leading to fast wage growth, as workers switch jobs for better pay, and that poorer employees are benefiting most of all. The researchers reckon that, since 2020, some two-fifths of the rise in wage inequality over the past four decades has been undone.

Here’s the chart which shows bigger gains for the bottom 10% than the top 10% in that time:

Sonu Varghese produced a chart that shows a similar divergence between manager and non-manager wages:

The employees have seen their wage growth handily outpace their boss’s pay growth since 2020.

All of this is good news!

This economic environment has been challenging but this outcome should be celebrated.

There are always two sides to every economic story. There are obviously still people in the bottom 50% who are being left behind, who haven’t experienced these wage increases and who have been harmed by the inflationary spike during the pandemic.

But taken as a whole, these numbers are encouraging. I hope we continue to see this stuff moving in the right direction.

My worry is we’re going to look back at the pandemic as a one-off historical economic anomaly, much like World War II was for the middle class.

Michael and I talked about the bottom 50% and much more on this week’s Animal Spirits video:

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Further Reading:
America’s Piggy Banks Are Full

Now here’s what I’ve been reading lately:

  • Setting the record straight on stocks for the long run (CFA Institute)
  • We’re all surrounded by immense wealth (Raptitude)
  • 10 financial rules of thumb you don’t have to follow (Morningstar)
  • How many of our “facts” about society, health and the economy are fake? (Noahpinion)
  • Making a living as a book author is as rare as being a billionaire (The Intrinsic Perspective)
  • Can Glen Powell save movies? (Wild About Film)

Books: