Wednesday, March 12, 2014

Wealth Inequality and Stock Market Gains | House of Debt

Wealth Inequality and Stock Market Gains | House of Debt

"For the past couple of years, the quarterly release of the Federal
Reserve Flow of Funds data has been cheered because it has shown a sharp
rise in household wealth, particularly of financial assets. We agree
this is good news, but the aggregate headline numbers are incomplete."

"It is crucial to think carefully about the distribution of
these wealth gains."

"An indisputable fact is that the distribution of financial assets is
heavily skewed to the rich. In fact, the top 20% of the wealth
distribution owns over 80% of the financial assets in the economy! So
when the aggregate Flow of Funds data show a rise in financial asset
values, it is important to remember that the rise primarily benefits the
rich. Here is the fraction of total financial assets held by the top,
middle, and bottom quartile of the U.S. population in 2010."

"If stock market wealth is concentrated among the very rich, who are less
likely to spend out of an increase in wealth, rising stock market
wealth will have a  smaller impact on spending. Indeed, research suggests that the effect of increases in stock market wealth on spending are weak.

o while the aggregate headline number on household wealth is important,
we must remember who in the population is getting richer.  "

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