Average Net Worth of Billionaires and Ordinary US Households

Dear All:

Vj Laxmanan 2 minutes ago (as of March 24, 2013 11:46 PM) Posted at Forbes.com

Heres an interesting correlation between the average net worth of billionaires and ordinary American households.

Average Net Worth, U = UN /N [$, billions]

$6.00

$5.00

$4.00

$3.00

$2.00

$1.00

$0.00 0 20 40 60 80 100 120 140

Number of billionaires, N
Figure 1: The average net worth of the billionaires in a country U = U N/N where UN is the combined net worth of all the N billionaires in a country. Here we consider the data for Germany (58, 5.108), Russia (110, 3.883) and China (122,
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2.115). As the number of billionaires N increases, the average net worth U decreases. This is exactly similar to the situation observed with US households between 2000 and 2011, see Figure 2. Take Germany, Russia and China. The number of billionaires N in these three countries, according to the 2013 Forbes Billionaires list is, 58, 110, and 122, see Refs. [1-3]. The combined net worth, UN, of the N billionaires in each country can be determined by adding their individual net worths, after sorting the worldwide billionaire list by country of citizenship. The average billionaire net worth, U = UN/N, goes down with increasing billionaires; 5.018, 3.883, and 2.155, see Ref. [4]. This is illustrated in Figure 1. In a recent CNNMoney article, Tami Luhby, Ref. [5], has called attention to the US Census Bureau (hereafter USCB) data, Ref. [6], which shows that the median net worth, M, of US households decreased between 2000 and 2011 with a peak value for 2005. Americans have gotten poorer over the past decade, says Luhby. http://economy.money.cnn.com/2013/03/22/americanhouseholdwealth/?source=cnn_bin Only the median net worths are stated by Luhby and also by the USCB economists, Gottschalck, Vornovytskyy, and Smith, Ref. [6]. The number of US households N is not stated. So, I did some checking and got the data on the number of US households along with mean and median values for the net worth from the most recent 2011 US Census Bureau Report, Ref. [7] and other tables USCB tables, see Refs. [8, 9] and the image of the relevant data copied from Ref. [7], see also Table 1. Guess what? The number of households N increased between 2000 and 2011. With increasing number of households N the mean (or average) and median net worth decreased, just like the average worth of the billionaires decreased as the number of billionaires N increased, see Figures 1 and 2.
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A story about the Median

Heres an interesting story about the Median. Sir Francis Galton, a cousin of Charles Darwin, was prominent in many fields, including statistics and promoted what we call correlations and linear regression analysis. He found the famous relation between the height of the son and the height of the father (1,078 father-son pairs were studied). Anyway, he once attended a village fair where an ox was on display. The villagers were asked to guess its weight, after slaughtering and dressing. One man guessed it EXACTLY 1,198 pounds. There were nearly 800 guesses. Galton noted that the middlemost (what we call the median) was popular and higher and lower guesses were shouted out. The median was within 0.8% of the true weight. But, the average 1, 197 pounds, was even more accurate. Even after this Galton story, I dont know which wise guy told the US Bureau of Statistics to use the median household income in all their comparisons of trends. (Other countries also use median household income.) In my article on the median billionaire (click here), I have shown that the median is an utterly meaningless statistic! Sources: http://en.wikipedia.org/wiki/Francis_Galton http://www.stat.tamu.edu/~hart/212/simpreg1.pdf Galtons graph of sons height versus fathers height is on page 6.

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Just a coincidence, you say? Not really. Mathematically speaking the two problems are identical and are governed by the same law relating N (households or billionaires) to the average net worth. This has been discussed in several recent articles dealing with the billionaire problem, see references cited under related articles. Very sincerely V. Laxmanan, Sc. D. March 24, 2013

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

$75,000

$74,000

$73,000

$72,000

$71,000

$70,000

$69,000 106,000

110,000

114,000

118,000

122,000

Number of US households, N [in 000s]

Figure 2: The average net worth of the households in a country U = UN/N where UN is the combined net worth of all the N households in a country, at a given
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point in time. Here we consider the data for the years 2000, 2005, and 2011, cited in a recent US Census Bureau report, Ref. [6] and also in a CNNMoney article, Ref. [5]. While the number of households N was not mentioned in these two articles, it can be obtained from the Table A-1 of the 2011 US Census Report come, Poverty and Health Insurance Coverage in the United States, Ref. [7]. As we see here, the average net worth decreases as the number of households increases. This is exactly analogous to the decrease in the average net worth of the billionaires seen in Figure 1. The graph of the median net worth reveals an exactly identical pattern. It should be noted that the median net worth figures in the 2011 US Census Report are significantly different from the median values given by Gottschalck, Vornovytskyy, and Smith, Ref. [6], which is also cited in the CNNMoney article. Table 1: Relevant data from the US Census Bureau reports and tables Median Mean Year wealth, wealth Ref.[7] Ref.[7] (US dollars) (US dollars) 2011, Refs.[5,6] --$68,828 2011 121,084 $50,054 $69,677 2010 117,538 119,927 $50,831 $69,518 2009 117,181 117,538 $52,195 $71,278 2008 116,783 117,181 $52,546 $71,475 2007 -116,783 $54,489 $73,337 2006 -116,011 $53,768 $74,259 2005, Refs.[5,6] --$108,585 2005 113,343 114,384 $53,371 $72,977 2004 -113,343 $52,788 $71,997 2003 -112,000 $52,973 $72,232 2002 -111,278 $53,019 $72,326 2001 -109,297 53,646 $73,947 2000, Refs.[5,6] --$81,821 2000, Ref. [9] 104,705 108,209 $54,841 $74,621 Note: Only number of households, for the years indicated, is given in Table 59 of Ref. [9]. The number of households and their median and mean net
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Households Table 59 Ref. [9]

Households Table A-1 Ref. [7]

worths are given in Table A-1 of Ref. [7]. The median values, however, do not agree with the values given in Ref. [6]. Also, there is a significant discrepancy in the number of households N data. The most recent figures from Table A-1 are used here since these are considered to revised figures.

References List
1. The Worlds Billionaires, The Richest People on the Planet 2013, by Luisa Kroll and Kerry A. Dolan, March 4, 2013, http://www.forbes.com/billionaires/ 2. Inside the 2013 Billionaires List: Facts and Figures, by Luisa Kroll, March 4, 2013, http://www.forbes.com/sites/luisakroll/2013/03/04/inside-the-2013billionaires-list-facts-and-figures/ 3. Mapping the Wealth of the Worlds Billionaires, by Luisa Kroll, March 9, 2013, http://www.forbes.com/sites/luisakroll/2013/03/09/mapping-thewealth-of-the-worlds-billionaires/ 4. Average Billionaire Net Worth by Country: Full list, by Edwin Durgy, March 13, 2013, http://www.forbes.com/sites/edwindurgy/2013/03/13/averagebillionaire-net-worth-by-country-full-list/ 5. Where American stash their Wealth? by Tami Luhby, March 22, 2013, http://economy.money.cnn.com/2013/03/22/americanhouseholdwealth/?source=cnn_bin The median net worth of American households came in at $68,828 in 2011, down from $81,821 in 2000 (in inflation-adjusted dollars) and far below the peak of $108,585 in 2005, according to recently released Census Bureau stats. 6. Household Wealth in the US: 2000 to 2011, by Alfred Gottschalck, Marina Vornovytskyy and Adam Smith, http://www.census.gov/people/wealth/files/Wealth%20Highlights%202 011.pdf The median net worth values for 2000, 2005 and 2011, cited by Tami Luhby are given here. The dollar amounts are in constant 2011
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dollars with inflation-adjustment factors. Between 2000 and 2011, aggregate net worth of $28.9 trillion to $40.2 trillion. Median household net
worth in the United Sates has followed this pattern over the past decade increasing from $81,821 [+/- $1,455] in 2000 to $106,585 [+/- $1,642] in 2005 (an increase of $24,764 or 30 percent) and then decreasing to $68,828 [+/- $1,235] by 2011 (a decrease of $37,757 or 35 percent)1 (see Figure 1). Overall, median household net worth decreased by $12,993, or 16 %, between 2000 and 2011. Median household net worth showed no statistically significant change between 2010 and 2011.

7. 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.

8. 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.
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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. 9. 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.

Related articles on the Billionaire Problem

1. Average Net Worth of Billionaires and Ordinary US households, Published March 24, 2013, http://www.scribd.com/doc/132189331/Average-Net-Worth-ofBillionaires-and-Ordinary-US-Households 2. Empirical Evidence for Entropy Outside Physics: Wealth Distribution among billionaires in the 2013 Forbes and Hurun Rich Lists, http://www.scribd.com/doc/132059874/The-Empirical-Evidence-forEntropy-Outside-Physics-Wealth-Distribution-among-the-billionaires-of2013-Forbes-and-Hurun-Rich-Lists Published March 24, 2013. 3. Wealth Distribution between the 2013 Forbes and Hurun Rich Lists, http://www.scribd.com/doc/131830628/Wealth-Distribution-Betweenthe-2013-Forbes-and-the-Hurun-Rich-Lists, Published Mar 22, 2013. 4. Average Net Worth by Country - Part 1: Preliminary Analysis of the 2013 Forbes Billionaire Data, Published March 18, 2013. http://www.scribd.com/doc/131208984/The-Average-Net-Worth-byCountry-Part-I-Analysis-of-the-2013-Forbes-Billionaires-Data 5. Average Net Worth by Country - Part 2: Analysis of the 2013 Worlds Billionaire Data, to be Published March xx, 2013.
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6. China has fewer billionaires than most other large countries, Published March 21, 2013, http://www.scribd.com/doc/131583456/China-Has-Fewer-BillionairesAccording-to-the-Billionaire-Net-Worth-Analysis2013 7. Average Net Worth of Billionaires by Country: 2013 Hurun Rich List,
http://www.scribd.com/doc/131764299/Average-Net-Worth-of-Billionairesby-Country-The-2013-Hurun-Rich-List Published March 22, 2013.

8. The Average Net Worth by Country, Part 1: Introducing the x-y Diagram, Preliminary Analysis of the Forbes 2013 Worlds Billionaires Data, Published March 19, 2013, http://www.scribd.com/doc/131208984/The-Average-Net-Worth-byCountry-Part-I-Analysis-of-the-2013-Forbes-Billionaires-Data 9. Average Net Worth by Country - Part 2: Analysis of the 2013 Worlds Billionaire Data, to be Published March xx, 2013. 10. The Recent Growth in the Average Worth of US Billionaires (09-13) A Curious Limits to Growth Revealed Again, Published March 18, 2013 http://www.scribd.com/doc/131005255/The-Recent-Growth-in-theAverage-Worth-of-US-Billionaires-%E2%80%9909-%E2%80%9813-ACurious-Limits-to-Growth-Revealed-Again 11.Quantitative Comparison of the Billionaires in the Forbes Hall of Fame, http://www.scribd.com/doc/130826078/Quantitative-Comparison-of-theBillionaires-in-the-Forbes-Hall-of-Fame Published March 17, 2013. 12.Growth in the Combined Net Worth of Billionaires from 2000-2013: An Interesting Limits to Growth is Revealed, Published March 15, 2013, http://www.scribd.com/doc/130517722/Growth-in-the-Combined-Net-Worthof-Billionaires-From-2000-2013-An-Interesting-Limit-to-Growth-is-Revealed 13.Growth of Billionaires Worldwide and in the USA: Analysis of the number of billionaires data since 1982, Published March 14, 2013, http://www.scribd.com/doc/130377891/The-Growth-of-BillionairesWorldwide-and-in-USA-Analysis-of-the-data-since-1982 14.Countries with the most billionaires in the 2013 Forbes Billionaire List, Published March 9, 2013, http://www.scribd.com/doc/129406030/Countrieswith-Most-Billionaires-in-the-Forbes-2013-Billionaires-List

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15.Average worth of the Top 10 Billionaires in a Country, Published Mar 11, 2013, http://www.scribd.com/doc/129863162/Average-Worth-of-the-Top-10Billionaires-in-a-Country 16.Per Capita Trends for Ultra High Net Worth Residents in US Cities, Published March 11, 2013, http://www.scribd.com/doc/129722844/Per-CapitaTrends-for-the-Ultra-High-Net-Worth-UHNW-Residents-in-US-Cities 17.Europe and Asia-Pacific billionaires in the Forbes 2013 list: Whats the difference? Published March 10, 2013 http://www.scribd.com/doc/129634796/Europe-and-Asia-Pacific-Billionairesin-the-2013-Forbes-List-What-s-the-difference 18. The Rate of Creation of Billionaires: Analysis of the Forbes 2013 Billionaire List, Published March 6, 2013, http://www.scribd.com/doc/128944910/The-Rate-of-Creation-ofBillionaires-Analysis-of-the-2013-Forbes-Billionaire-s-List 19. Billionaires and Calculus: Ratio versus Rate of Change Is Einsteins Work Function Observed In this Problem? Published March 5, 2013. http://www.scribd.com/doc/128610494/The-Forbes-Billionaires-andCalculus-Is-Einstein-s-Work-Function-Observed-Here 20. Billionaires and the Population Law: Analysis of the 2013 Forbes Billionaires List, to be published shortly.

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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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