Bridgewater®

Daily Observations
October 23, 2017©2017 Bridgewater Associates, LP(203) 226-3030

Ray Dalio
Steven Kryger
Brandon Rowley
Neil Hannan

Our Biggest Economic, Social, and Political Issue
The Two Economies: The Top 40% and the Bottom 60%
To understand what’s going on in “the economy,” it is a serious mistake to look at average statistics. This isbecause the wealth and income skews are so great that average statistics no longer reflect the conditions of theaverage man. For example, as shown in the chart below, the wealth of the top one-tenth of 1% of the population
is about equal to that of the bottom 90% of the population, which is the same sort of wealth gap that existed
during the 1935-40 period.

US Net Wealth Shares
Bottom 90%

Top 0.1%

40%
Emergence ofPopulism

Era ofPopulists

35%
30%
25%
20%
15%
10%
5%
0%

1900

1910

1920

1930

1940

1950

1960

1970

1980

1990

2000

2010

2020

To give you a sense of what the picture below the averages looks like, we broke the economy into two
economies—that of the top 40% and that of the bottom 60%.1 We then observed how conditions of the
majority of Americans (the bottom 60%) are different from the conditions of those of the top 40%, as well as
different from the picture conveyed by the average statistics. We focused especially on the bottom 60%
because that’s where the majority of Americans are and because the picture of this economy is not apparent tomost people in the top 40%.

1

While in our analytical work we look at economic statistics much more granularly (often in quintiles to divide into different groups, which
gives us a much richer picture than is conveyed in these top 40% and bottom 60% groups), showing more groups and greater granularity
would have created greater length and confusion. Still, I encourage you to look at the economy more granularly than shown here.
© 2017 Bridgewater® Associates, LP. By receiving or reviewing this Bridgewater Daily Observations™, you agree that this material is confidential intellectual
property of Bridgewater® Associates, LP and that you will not directly or indirectly copy, modify, recast, publish or redistribute this material and the information
therein, in whole or in part, or otherwise make any commercial use of this material without Bridgewater’s prior written consent. All rights reserved.

1
Bridgewater® Daily Observations 10/23/2017

The Bottom 60% Compared with the Top 40% and the “Average”
We will start off looking at income and the economic picture and then turn to some related lifestyle and politicaldifferences.
•

There has been no growth in earned income, and income and wealth gaps have grown and areenormous. Since 1980, median household real incomes have been about flat, and the average
household in the top 40% earns four times more than the average household in the bottom 60%. Whilethey’ve experienced some growth recently, real incomes have been flat to down slightly for the average
household in the bottom 60% since 1980 (while they have been up for the top 40%). Those in the top
40% now have on average 10 times as much wealth as those in the bottom 60%. That is up from six
times as much in 1980.
Average Household Income(Real 2016 USD)
All 35-64-Year-Olds
Top 40% Earners

Average Household Net Wealthby Income Percentile (Real 2016 USD)

Bottom 60% Earners

Total

Bottom 60%

Top 40%$1,600K
$170K
$150K

$1,200K

$130K
$110K

$800K

$90K
$70K

$400K

$50K
$30K
80

•

85

90

95

00

05

10

15

$0K
80

85

90

95

00

05

10

15

Only about a third of the bottom 60% saves any of its income (in cash or financial assets). As a result,according to a recent Federal Reserve study, most people in this group would struggle to raise $400 inan emergency.
% of Families Who Report Spendingat Least Their Income(i.e., Don't Save)

60%
50%
40%
30%
20%
10%
0%

Top 40%•Total

Bottom 60%

The rates of income and wealth changes of the middle class have been worse than those changes in anyof the other groups, once you account for the social safety net and taxes. The charts below show income,adding in the impact of taxes, tax credits, benefits, and transfers (including non-monetary governmenttransfers like Medicaid and employer health insurance). Unlike the picture of real earned incomes shown
earlier, all the quintiles had seen some growth until 2008. This was primarily driven by increases intransfers, benefits, and social programs (especially medical benefits). It also lights up some differences
within the bottom 60%. Note that while the conditions of those in the bottom quintile of society are2
Bridgewater® Daily Observations 10/23/2017

terrible, and worse than those of the middle class by most measures (e.g., income, health, death rates,
incarceration rates, etc.), the rate of change in these conditions has been worse for the middle class. Morespecifically, the middle class has experienced less post-tax and transfer income growth than the bottom
quintile since 1980 (see chart on the right), partially because government support to the bottom has
provided more of a cushion—though in both cases, income growth has been very low.
Real Household Income After Taxes
and Transfers (Indexed to 1980)
Total

Bottom 60%

Real Household Income After Taxes
and Transfers (Indexed to 1980)

Top 40%Bottom 20%

20-40%

40-60%

130%

160%

120%

140%

110%
120%
100%
100%

90%

80%
80

•

85

90

95

00

05

10

15

80%
80

85

90

95

00

05

10

15

The middle class has been especially hard-hit by manufacturing jobs declining about 30% since 1997,
which is shown in the below chart.
Manufacturing Employment (Thousands)
20,00019,00018,00017,00016,00015,00014,00013,00012,00011,000
1980

•

1985

1990

1995

2000

2005

2010

2015

2020

Those in the top 40% have benefited disproportionately from changes in asset values relative tothose in the bottom 60%, because of their asset and liability mix. The balance sheets of these twogroups, shown below, are sharply different. Though the bottom 60% has a small amount of savings,
only a quarter of it is in cash or financial assets; the majority is in much less liquid forms of wealth, likecars, real estate, and business equity. For the bottom, debt is skewed toward more expensive student,
auto, and credit card debt.

3
Bridgewater® Daily Observations 10/23/2017

Average Balance Sheet by Income Group (2016 USD, K)
Total Assets% Stocks% Bonds% Cash% Real Estate% Autos% Bus Equity% Other

Top 40%$1,698K Total Debt
27%
% Mortgage
8%% Student
6%% Auto31%% Credit Card2%
% Other
21%
5% Net Worth

$180K
72%
5%
5%
2%
16%
$1,517K

Total Assets% Stocks% Bonds% Cash% Real Estate% Autos% Bus Equity% Other

Bottom 60%$180K Total Debt
12%
% Mortgage
4%% Student
7%% Auto54%% Credit Card
7%
% Other
8%7% Net Worth

$38K
63%
17%
8%
4%
9%
$141K

Assets of bottom 60% moreconcentrated in housing and autos•

The increasing disparity in financial conditions is a major cause of the slowing of growth, because
those in lower income/wealth groups have higher propensities to spend than those in higher
income/wealth groups. Said differently, if you give rich people more money, they probably won’t spend
much of it, whereas if you give poorer people more money, they will probably spend more of it, eachmotivated by the extent of their unmet needs and desires.2•

Retirement savings for the bottom 60% are not even close to adequate and aren’t much improved as
the economy and markets have recovered. Only about a third of families in the bottom 60% haveretirement savings accounts—e.g., pensions, 401(k)s—which average less than $20,000. Further, as we
do projections of pension finance, it appears unlikely that pension retirement benefits will be fully met.
Average Retirement Savings by Family
Income (2016 USD, Thous)

Percentage of Families with
Retirement Accounts
All Families

All Families

Bottom 60%

Bottom 60%

Top 40%Top 40%

100%

$300

80%

$250
$200

60%

$150
40%

$100

20%

$50

0%
80

•

90

00

10

$0
80

90

00

10

Death rates are rising and mental and physical health is deteriorating for those in the bottom 60%.
For those in the bottom 60%, premature deaths are up by about 20% since 2000. The biggest
contributors to that change are an increase in deaths by drugs/poisoning (up two times since 2000)
and an increase in suicides (up over 50% since 2000). The odds of premature death for those in thebottom 60% between the ages of 35 and 64 are more than two times higher, compared to those in the
top 40%.

2

To be clear, while my goal is simply to convey what is, rather than delve into what to do about it, I do want to be clear that giving money to be
used for consumption rather than for improving production or cutting costs to improve efficiency (e.g., reducing incarceration rates and costs) willdiminish the value of money and not increase the size of the pie. For that reason, some mix of a) directing resources so that they are usedproductively to generate more than enough income or savings in order to pay for themselves and b) productive wealth transfers appears
inevitable. Hopefully the first of these paths will be maximized, though that seems unlikely based on existing political fragmentation and its
trends.

4
Bridgewater® Daily Observations 10/23/2017

More debt instudent loans
and higher
interest rate
consumer credit•

The US is just about the only major industrialized country with flat/slightly rising death rates.
Annual Premature Deaths (per 100,000, 35-64 Year Olds)
All 35-64-Year-Olds
Bottom 60% Earners

USA

DEU

FRA

Top 40% Earners

GBR

CAN

JPN

750
650

650
550

550

450

450

350
350

250
150
80

•

85

90

95

00

05

10

15

250
80

85

90

95

00

05

10

15

The top 40% spend four times more on education than the bottom 60%. This creates a selfperpetuating problem, because those at the bottom get a much worse education than those at the top.
Spending on Education (2016 USD, Ann)All Households
Bottom 60% Earners
Top 40% Earners$3,000$2,000$1,000
$0

80

•

85

90

95

00

05

10

15

The bottom 60% increasingly believe others will take advantage of them: the percentage is 49% today
versus 40% in 1990.

While conditions for the lowest income groups have long been bad, conditions of non-college-educated whites(especially males) have deteriorated significantly over the past 30 years or so. This is the group that swung
most strongly to help elect President Trump. More specifically:•

Now, the average household income for main income earners without a college degree is half that of theaverage college graduate.

•

The share of whites without college degrees who describe themselves as “not too happy” has doubled
since 1990, from 9% to 18%, while for those with college degrees it has remained flat, at around 7%.

•

Since 1980, divorce rates have more than doubled among middle-age whites without college degrees,from 11% to 23%.

•

Prime working-age white males have given up looking for work in record numbers; the number of primeage white men without college degrees not in the labor force has increased from 7% to 15% since 1980.

•

More broadly, men ages 21 to 30 spend an average of three fewer hours a week working than they did a
decade ago; most of that time is spent playing video games.

5
Bridgewater® Daily Observations 10/23/2017

•The probability of premature death for whites without college degrees between the ages of 35 and 64 isnearly three times higher than it is for whites with college degrees, and the rate of premature deaths is
up by about 25% since 2000 (while it is down for virtually every other demographic group). The US
white population is unique among large groups in the developed world for seeing increases in their death
rates. Below, we show premature deaths among working-age whites between the ages of 35 and 64.
Again, the average obscures the picture. America’s non-white population isn’t seeing such a rise inpremature deaths.
Annual Deaths (per 100,000)

Annual Deaths (per 100,000)

Whites, 35-64 Yrs Old

Non-Whites, 35-64 Yrs Old

w/o 4yr Degree

w/o 4yr Degree
w/ Bachelor/Graduate Degree

w/ Bachelor/Graduate Degree

1,050
950
850
750
650
550
450
350
250
150

750
650
550
450
350
250
150
80

85

90

95

00

05

10

80

15

85

90

95

00

05

10

15

The polarity in economics and living standards is contributing to greater political polarity, as reflected in the
below charts.
Share of Congressional Votes Cast
along Party Lines

Ideology of Senate
Democrats

98

Republicans
60%

More Conservative

96

40%

94

High partisanship

92

20%

High polarizationand partisanship

90

0%

88
-20%

86

More Liberal
-40%

84
82

-60%
00

20

40

60

80

00

20

00

20

40

6
Bridgewater® Daily Observations 10/23/2017

60

80

00

20

It is also leading to reduced trust and confidence in government, financial institutions, and the media, which isat or near 35-year lows.
% of Americans with Confidence in the Institution
Congress

Newspapers

TV News
50%

55%

35%

45%

50%

30%

40%

45%

25%

35%

40%

20%

30%

35%

15%

25%

30%

10%

20%

25%

5%
80

90

00

10

Banks

40%

15%
80

90

00

10

20%
80

90

00

10

In Summary
Average statistics camouflage what is happening in the economy, which could lead to dangerous miscalculations,most importantly by policy makers. For example, looking at average statistics could lead the Federal Reserve tojudge the economy for the average man to be healthier than it really is and to misgauge the most important
things that are going on with the economy, labor markets, inflation, capital formation, and productivity, rather
than if the Fed were to use more granular statistics. That could lead the Fed to run an inappropriate monetary
policy. Because the economic, social, and political consequences of an economic downturn would likely be
severe, if I were running Fed policy, I would want to take this into consideration and keep an eye on the economyof the bottom 60%. By monitoring what is happening in the economies of both the bottom 60% and the top
40% (or, even better, more granular groups), policy makers and the rest of us can give consideration to theimplications of this issue. Similarly, having this perspective will be very important for those who determine fiscal
policies and for investors concerned with their wealth management. We expect the stress between the two
economies to intensify over the next 5 to 10 years because of changes in demographics that make it likely thatpension, healthcare, and debt promises will become increasingly difficult to meet (see “The Coming Big
Squeeze”) and because the effects of technological changes on employment and the wealth gap are likely tointensify. For this reason, we will continue to report on the conditions of “the top 40%” and “the bottom 60%”
separately (as well as on the averages), and we encourage you to monitor them too.

7
Bridgewater® Daily Observations 10/23/2017

Appendix: Other Interesting Charts and Data
As shown below, the percentage of children who grow up to earn more than their parents has fallen significantlyin the US over the past 50 years. The first chart shows that only 50% of all children born in 1980 (i.e., thosecurrently in their 30s) will earn more than their parents. Survey data shows the same picture—the bottom 60%
are more likely to think that they are worse off than their parents than the top 40%.

% of 30-Year-Olds Who Earn MoreThan Their Parents
More than 90% of
those born in 1940
earned more thantheir parents% Reporting Worse
Standard of Living Than Their Parents
All 35-64-Year-Olds
Top 40% Earners

100%

Bottom 60% Earners

35%

90%
80%

25%
70%
Now, 50%

60%

15%

50%
5%

40%
70

80

90

00

90

10

95

00

05

10

15

The two charts below show income shares and average versus median incomes. As you can see, income has
become increasingly concentrated, with the top 40% of earners gaining share over the past 35 years. This is also
reflected in average versus median incomes, as the distribution of incomes has caused the average income tosignificantly diverge from the median.
Real Household Income(2016 USD, 35-64-Year-Olds)

Income Share
Bottom 60%

Top 40%

Average

Median
$100K

80%

$95K

70%

$90K
60%

$85K
$80K

50%

$75K

40%

$70K
30%

$65K

20%
80

85

90

95

00

05

10

15

$60K
80

85

90

95

8
Bridgewater® Daily Observations 10/23/2017

00

05

10

15

The chart below shows the levels and shares of wealth for the top 40% versus the bottom 60% of income earners.
Net Wealth Shareby Income Percentile
Bottom 60%

Top 40%

60%

100%

50%

90%

40%

80%

30%

70%

20%

60%

10%

50%

0%

40%
80

90

00

10

Most people in the bottom half have virtually no savings and minimal financial security, as the chart below
demonstrates. Over half of the bottom 60% don’t save any money on a monthly basis, resulting in their having
no room to cover unexpected expenses.
Months of Income Saved in
Financial Assets (Median, by Income)All Households
Top 40%Bottom 60%
15

Virtually no
income saved forthe bottom 60%

10

5

0
80

85

90

95

00

05

10

15

While there are a lot of factors contributing to flat/declining real wages, much of the weakness has been driven
by the decline of middle-income occupations, like manufacturing. Many of the good jobs available to a highschool graduate two decades ago have disappeared, and those that remain have seen below-average wage
growth. The factors behind this are multifaceted—including technology replacing people, increasing
globalization causing middle-class jobs to shift to emerging countries (principally China), and othermacroeconomic shifts—which we won’t go into depth on here.

Change in Real Wages
and Employment Share since 1997
Occupations by 2016
Average Income

Change in Real
Wages

Change in
Employment Share2016 Employment
Share

70K and above jobs

34%

3%

22%

40K-60K jobs

10%

1%

30%

30K-40K jobs

8%

-7%

32%

Under 30K jobs

13%

4%

16%

Total

18%

9
Bridgewater® Daily Observations 10/23/2017

Those jobs have largely been replaced by two sets of jobs: higher-skill jobs, which aren’t accessible to noncollege-educated workers, or low-skill jobs, which pay lower wages and which have experienced below-averagereal wage growth over the past several decades.

Change in Wages and Employment Share since 1997
Change in
Employment
Share

2016
Employment
Share

43%

-2%

5%

24%

0.2%

1%

73%

1%

3%

$84,300

18%

-1%

2%

Healthcare Practitioners and Technical$79,160

24%

1%

6%

Business and Financial Operations$75,070

23%

2%

5%

Life, Physical, and Social Science$72,930

15%

0.3%

1%

Arts, Design, Entertainment, Sports, and Media$58,390

19%

0.4%

1%

Education, Training, and Library$54,520

4%

0.5%

6%

Construction and Extraction$48,900

4%

1%

4%

Community and Social Service$47,200

9%

0.2%

1%

$46,690

7%

0.0%

4%

2016 Average
Wage

Change in Real
Wages

Management$118,020

Legal$105,980

Computer and Mathematical$87,880

Occupational Category

Architecture and Engineering

Installation, Maintenance, and Repair
Protective Service$45,810

17%

0.3%

2%

Sales and Related$40,560

14%

-2%

10%

Office and Administrative Support$37,260

7%

-2%

16%
6%

Production$37,1907%-5%Transportation and Material Moving$36,070

10%

-1%

7%

Healthcare Support$30,470

10%

1%

3%

Building and Grounds Cleaning and Maintenance$28,010

11%

1%

3%

Farming, Fishing, and Forestry$27,810

0%

-1%

0.3%

Personal Care and Service$26,510

16%

2%

3%

Food Preparation and Serving Related$23,850

14%

2%

9%

Highest Income Jobs:
Increasing employment
and above-average wage
growth$40-60K Jobs:
By and large, flat
employment andbelow-average wage
growth$30-40K Jobs:
Declining employment andsignificantly below-average
wage growth. These aresome of the higher-wagejobs that one can get
without a college degree.
$20-30K Jobs:
Increasing employment
and below-average wage
growthAs job prospects have weakened, particularly for those without a four-year college degree, prime-age workers
have increasingly dropped out of the labor force. As shown below, the share of prime-age men who are not in
the labor force has doubled since 1980 and is now around 12%, with a large and widening divergence between
those with a degree and those without. The decline in labor force participation among prime-age men has
occurred throughout the developed world, but has been most pronounced in the US.
% Prime-Age Men Not in Labor Force% Prime-Age Men Not in Labor Force

Men, 25-54 Yrs Old
w/o 4yr Degree

USA

EUR

JPN

GBR

CAN

AUS

w/ Bachelor/Graduate Degree
16%

14%

14%

12%

12%

10%

10%

8%

8%
6%

6%

4%

4%
2%
80

90

00

10

2%
80

90

10
Bridgewater® Daily Observations 10/23/201700

10More Detail on Health and Social Changes
The increase in premature deaths among the bottom 60% is largely because of an increase in deaths bydrugs/poisoning (up two times since 2000) and an increase in suicides (up over 50% since 2000). Notably,
while the increase in drug-related deaths is concentrated in the bottom 60% of earners, the rise in suicides isbroader and doesn’t look as directly connected to income.
Drug and Alcohol Deaths (per 100,000)
Whites, 35-64-Yrs-Old
w/o 4yr Degree
w/ Bachelor/Graduate Degree

All 35-64-Year-Olds
Bottom 60% Earners
Top 40% Earners
60

60

40

40

20

20
0

0
90

95

00

05

10

90

15

95

00

05

10

15

Suicides (per 100,000)
Whites, 35-64-Year-Olds
w/o 4yr Degree
w/ Bachelor/Graduate Degree

All 35-64-Year-Olds
Bottom 60% Earners
Top 40% Earners
30

30

25

25

20

20

15

15

10

10

5
90

95

00

05

10

15

5
90

95

00

05

10

15

While many of the major causes of death have been flat or falling over the last 15 years, deaths from drugs andalcohol more than offset it among the bottom 60%. And the rise in drug-related deaths is not happening acrossthe world—the phenomenon is unique to the US.

11
Bridgewater® Daily Observations 10/23/2017

Deaths by Cause (All 35-64-Yr-Olds)
Drugs & Alcohol
Breast Cancer
Diabetes
Respiratory Disease

Lung Cancer
Colon Cancer
Heart Attack
Car Accidents
50
45
40
35
30
25
20
15
10
5

90

95

00

05

10

15

Overall, the US healthcare system is very expensive, is worse by many measures, and is generally failing the bottom
60%. The US spends about twice as much per person on healthcare compared to its developed world peer average.
Healthcare Spending
Per Capita, USD%GDP$12,000

20%$10,000$8,00015%$6,000$4,00010%$2,000
5%
USA

$0
USA

Developed World(ex-USA)

Developed World(ex-USA)

Healthcare Spending vs Life Expectancy
90

85

80

75
5%

7%

9%

11%

13%

15%

Healthcare Spending (%GDP)

12
Bridgewater® Daily Observations 10/23/2017

17%

19%

Life Expectancy

US unique outlier in terms ofhealthcare spending and lower life
expectancyOn many (but not all) measures of quality, US healthcare lags behind its developed world peers. Overall, publichealth is much worse in the US compared to other developed countries.

Healthcare Performance Measures across Developed Nations
USA

Dev World(ex-USA)

Infant Mortality (per 1,000 births)

6.0

3.6

Adults w/ at least 2 Chronic Conditions

21%

11%

Mortality Amenable to Healthcare (Deaths per 100,000)

112

72

HealthUS healthcare notably worse
across a number of
performance measures

Preventative Care Measures
Avoidable Hospital Admissions (Asthma, per 100,000)

103

36

Avoidable Hospital Admissions (Diabetes)

198

118

Avoidable Hospital Admissions (Heart Failure)

367

222

Older Adults w/Influenza Vaccine

68%

57%

Women w/Mammography Screening (age 50-69)

81%

69%

Healthcare Professional Did Not Review Medications

17%

33%

Medical, Medication, Lab Mistake (past 2 years)

19%

13%

Safe Care

AccessRegular Doctor often Answers Same Day when Contacted

72%

81%

Somewhat or Very Difficult to Obtain After Hours Care

51%

52%

Waited 2 hours or More for Care in Emergency Room

25%

28%

About 12% of the bottom 60% remain uninsured, and their spending on healthcare in total (including insurance)
is about half that of the top 40%. The lack of access contributes to people skipping care: approximately one inevery five patients in the US reports skipping medical tests, treatment, or follow-ups due to costs. This is
nowhere near as prevalent in the rest of the developed world.

Share of US Population Uninsured

Healthcare Spending ($ thousands)

At Least One Procedure Skipped Dueto Costs (Rate per 100 patients)
25

$7
14%

$6

12%

$5

10%

$4

8%

Bottom 60%

Top 40%Many patients are
skipping care due
to costs

6%

$3

4%

$2

2%

$1

0%

$0
Bottom 60%

Top 40%13
Bridgewater® Daily Observations 10/23/2017

20
15
10
5
0

USA

Developed World(ex-USA)Other Social Indicators of a Growing Divide•

Along with spending, there is a meaningful gap in college graduation rates between those with parents
in the top 50% versus the bottom 50%. Only 20% of students from families in the bottom 50%
graduate college, compared to about 50% for those from families in the top 50%.

•

Families of those who have not gone to college are breaking up at an accelerating rate that is now nearly
twice that of those who have gone to college.
Divorced/Separated(Middle-Age Whites)
No 4yr Degree

Bachelor/Graduate
25%
20%
15%
10%

80

85

90

95

00

05

10

15

Relatedly, people living in small towns and rural areas are seeing their communities in decline. In thesecommunities, white workers without a college education make up a large share of the population and weredisproportionately dependent on manufacturing jobs that have decreased. Employment in these areas has notrecovered since 2008, and population growth, which has been weak compared to the rest of America for
decades, is falling. Notably, those communities have tended to have fewer people with four-year degrees, andthis gap in education has expanded as economic opportunities in non-metro areas have declined.
Urban vs Small Town/Rural
Employment (Indexed to 1990)
Urban

Small Town/Rural

Decades of fasterjob growth inurban areas.
Rural economies
are still depressedfollowing thefinancial crisis.
80

85

90

95

00

05

10

15

US Population Growth (5yr Chg, Ann)
Urban

Small Town/Rural
1.5%

135
130
125
120
115
110
105
100
95

1.0%
0.5%
0.0%
-0.5%
80

85

90

95

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Bridgewater® Daily Observations 10/23/2017

00

05

10

15

Decades ofslowerpopulation
growth inrural areas

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Bridgewater® Daily Observations 10/23/2017