Did the Federal Reserve Survey on Wealth Exclude the Top 400 Wealthiest People in America?

The recent Federal Reserve analysis of the effects of the Great Recession on household wealth and income was a doozy, showing that median income dropped 7.7% and median net worth fell by 38.8% from 2007-2010. But that may not be the whole truth – the Fed might actually be leaving a very significant group of people out of the sample – the top 400 wealthiest people, or the 0.0000035%.

Someone brought this part of the the Fed study to my attention (note to self, always read the section on methodology).

Second, a supplemental sample is selected to disproportionately include wealthy families, which hold a relatively large share of such thinly held assets as noncorporate businesses and tax-exempt bonds. Called the “list sample,” this group is drawn from a list of statistical records derived from tax returns. These records are used under strict rules governing confidentiality, the rights of potential respondents to refuse participation in the survey, and the types of information that can be made available. Persons listed by Forbes magazine as being among the wealthiest 400 people in the United States are excluded from sampling.

This passage describes how the Fed got the information on wealth and income., and I’ve bolded the relevant sentence. The Fed can easily get data on the non-wealthy, because the non-wealthy don’t have very much. Most people, to the extent they own anything, have some home equity, a bank account and perhaps a few mutual funds, with most wealth concentrated in housing. So the Fed researchers can essentially look at homeownership rates and figure out how much the non-wealthy people own, and how much they’ve lost or gained. But the wealthy are different, and here’s where it gets tricky. The wealthy own lots of illiquid assets, everything from priceless paintings to private multi-billion dollar companies. So the Fed does a separate survey just on the wealthy. Only, as the researchers say, “analysis of the data confirms that the tendency to refuse participation is highly correlated with net worth.” The rich aren’t just rich, they are secretive. And apparently the super-rich are super-secretive. And for some reason, these researchers just didn’t include the Forbes 400, the very richest of the rich.

You might say that the exclusion of 400 people isn’t significant; after all, it’s just 400 people. How big a difference could that really make? Well, it turns out, as of 2011, that the top 400 people in America own more than the entire bottom 60% of Americans. So this is not a trivial exclusion. The Fed claims in the report that it has a method for adjusting for rich people who don’t respond to their survey. Why the Fed has just not included the Forbes 400 is not clear, and I’m curious how they adjust for leaving out Mr. Gates and Mr. Buffett and company. I’ll send an email to the Fed to find out.