Fed report on family finances issues inconvenient truth for both parties

Oh, those pesky little details. If only they weren't so important to understanding how we got here — struggling to climb out of the worst economic hole since the Great Depression — and choosing which path would be a better way forward.

With less than five months to go before an election that may finally live up to that quadrennial campaign billing — "the most important in our lifetimes" — maybe it's no surprise that even basic facts get lost amid spin and distortion. In my lifetime, politics seems to have evolved in only one direction: uglier.

Still, it was almost amusing last week to see how quickly a very unfunny set of data — a Federal Reserve report on the state of U.S. families' finances in 2010 — could be twisted so easily for political points.

The Fed's snapshot taken two years ago documented sharp declines in household income and wealth after its previous triennial survey in 2007. In other words, it illustrated the dramatic effects of the mess we've just lived through: the housing bubble's collapse, the financial crisis, and what the Fed still tentatively labels "the so-called Great Recession."

Those dates — 2007 to 2010 — were right there in the report's title. But they were lost on Fox & Friends co-host Steve Doocy on Tuesday morning, and on his guest, Mitt Romney.

"It was a jaw-dropping statistic that was flashed across the country yesterday," Doocy said to the presumptive Republican presidential nominee. "The Federal Reserve has figured out that over the last three years, the net worth of the average American family has fallen 40 percent over three years."

Romney didn't correct Doocy on the years covered in the survey: 2007 to 2010. Instead, he repeated the misstatement later that morning during an interview with Philadelphia radio host Dom Giordano on WPHT (1210). Romney told Giordano, "Of course, we saw yesterday that the net worth of the average American family dropped by 40 percent over the last three years."

Misstatements like that matter, of course. Voters are the victims when politicians worry less about the facts than whether a misstatement works to further their preferred spin.

But today's subject isn't spin. It's the hard evidence in the Federal Reserve's report, and the uncomfortable challenge it should present to Romney, President Obama and both their parties.

At its headline level, the report focused on something that really should be obvious: Real estate and stocks took a huge financial hit from 2007 to 2010. While some people made money from well-timed asset sales, and others lost only their imaginary equity in bubble-priced houses, millions of people were harmed as the economy nearly fell off a cliff. Many still suffer today because of joblessness or underwater home mortgages.

But what should be even more troubling in the Fed's data are the vast disparities — not just in income but in family wealth — that long predate the Great Recession, and that have only been made worse by middle-class wage stagnation and tax cuts favoring the wealthy.

The Fed said the median family net worth in 2010 was $77,300, down 39 percent from 2007's median of $126,400. But before you dwell on the drop, consider what even the higher figure means.

Near the top of the housing bubble, the median U.S. family — a family with more assets than half the nation's households — had just $126,400 in wealth: the worth of all their assets, including any homes, cars, and retirement savings, minus their debts.

Even if everybody's numbers returned to 2007's levels, the picture wouldn't be pretty for large swaths of the country.

For a family in the bottom 20 percent of household income, with about $13,000 in annual earnings, the median net worth was $8,500 in 2007. Median-income families, who earned about $50,000 in 2007, had a median net worth of just $92,000.

Net assets are a complicated measure of families' well-being, to be sure. For most of us, they're increasingly important as retirement approaches, and the Fed data show medians rising with age. In the 55-to-64 age group, the median family had $266,000 in net assets in 2007, for instance, though that dropped to $179,000 three years later.

But with numbers like that, is it any wonder that Social Security payments represented more than 90 percent of income for about a third of beneficiaries in 2009, and more than half of income for about two-thirds of them? Or that "the 401(k) has failed" is almost an Internet meme?

The Fed's data are also a reminder of something many would like to forget in the Age of Obama: the nation's lingering white-black divide. And it's nowhere more clear than in the numbers on family wealth.

The Fed said the median nonwhite or Hispanic family earned $34,600 in 2010, about 65 percent of the median white, non-Hispanic family. That was down from 71 percent of median white earnings in 2007.

But those differences were dwarfed by the wealth disparities. In 2010, the median net worth of nonwhite or Hispanic families was about $20,000, about 16 percent of white families' $131,000.

And even those figures understate the wealth disparity facing African Americans, said Paul Taylor, of the Pew Research Center. In a report last year, Pew said that in 2009, the median net worth of black families was $5,677 — about one-twentieth of white families' net worth.

One reason for the discrepancy, Taylor said, was that unlike the Fed's report, Pew did not include Asian families among nonwhites. But any way you count, the differences are stark, and were magnified by the Great Recession. For most of the last three decades, Pew said, black families had roughly one-tenth the net worth of whites.

Why does wealth sometimes matter even more than income?

Wealth — yours or your family's — is what helps people get ahead, by paying for education, or providing funds to start a business. For some, it can be the difference between a leaky roof and a dry house — or homelessness. For others, it can mean the resources to repair a broken-down car or truck that's crucial to maintaining a job or small business. Perhaps even more than income, wealth disparities accumulated over time are what separate the 1 percent from the rest of us.

Taylor likens wealth to a rainy-day fund for life's inevitable storms — and a way to avoid the traps of debt. "Wealth means that when economic setbacks happen, you can ride them out," he says.

The disparities are sobering for anyone who wants to believe that America is well past its legacy of slavery and discrimination, and a reminder why investments in public goods such as education are so important to our future.

And in the aftermath of the Great Recession, they're very tough to spin.