By Daniel Becker
Stock market is up, Profits are up and banks are safe. So what? Unemployment is somewhere between going down and I can’t get no satisfaction. Housing values are still falling
A new nationwide survey from real estate Web site Zillow.com says the value of U.S. homes fell 3% from January 1 to March 30 — the steepest quarterly decline since 2008.
I know, I’m suppose to care. Bigger picture and all. But frankly, when I read comments such as that by Mark Sadowski’s
Since Bernanke’s Jackson Hole speech the steep rise in stock prices has increased household wealth by some $5 trillion. The rise in inflation expectations has helped to ease the household debt deflation problem. Consumption has been the bright story in the BEA numbers last two quarters,…
I just get all “A vineyard? Really?” Now I know Rebecca’s post is about looking for some indication that things are better though tipsy and Mark is responding that with: No, things are rather solid in the “we’re moving forward” category.
I’m going to be bold here and state right out that I’m speaking for the middle-class. (Those of this class can correct me if I’m wrong.) Five trillion dollar in new stock market wealth is not reaching us. I’m happy for you all that are now more wealthy, but really, you’re only a small percentage of the population and thus your success is not representative of how well We the People in total are doing.
Before I go further, let us do a little simple math (for you stat manipulators, the key word: simple. Add more complication as you wish in comments.) I am allowed to do this, keep it simple because I’m not an economist. Or am I?
Let’s say that 81.2% of all stock
is owned by the top 10% of wealth gatherers. (table 9). Let’s say there was 100 shares at $1 each for a total value in stock on 8/31/10 of $100. That $100 became $129.80 by 5/2/11.(S&P closing numbers) But, I’m going to round off all of this to keep it really simple. 100 shares. 80 shares owned by 10 people. 20 shares owned by 90 people. Fast forward 9 months and now the $100 is $120. Still 100 shares. (We’re excluding splits, initial offerings and anything else that would increase the number of shares, simple.)
So, 10 people now have a total worth of $96. The 90 people are splitting up $24. Both saw a 20% rise. Hooray! But here’s the issue, an additional $1.60 will do a lot more than an additional $0.04. The issue is coin in the pocket. For the middle-class, it’s just not happening.
Let’s add a some more fun facts to this Yahoo party. I used: Recent Trends in Household Wealth in the United States: Rising Debt and the Middle-Class Squeeze—an Update to 2007
by Edward N. Wolff, Levy Economics Institute of Bard College, March 2010
As of 2007, 38% of all households have stock via pensions and of that group it represents 31.4 % of all stock. (Table 14b, 14c) Unfortunately, the middle 3 quintiles 65.1% of their assets are their house, 12.9% is pension, 3.6% is stock held in some form. Darn few of the middle-class have any stock at all and what they have is tied up.
So again, that 29.8% rise… ain’t feeling it. I ain’t feeling it in customers in my shop. I ain’t feeling it in volume of sales in my shop. I ain’t feeling it in dollar’s per sale in my shop. Guess what I ain’t gonna do? I ain’t gonna hire anyone.
Let me leave you with this. Let’s say we manage to move 5 more people into the group that has 80% of the stock for a total of 15 people. They each have $5.333. (Finance likes to measure as if they are using micrometers.) The remaining 85 have $0.235. The 85 have 5.9% more wealth to start. 9 months later, the 15 people have $6.40 each. They have $1.067 more. The 85 have $0.282.
Certainly $0.047 more to those in the 85 group is not going to make them go out and buy flowers. However, 5 more people have more than a buck to spend and in my shop that buys one carnation that will last 2 to 3 weeks. As I noted before, buying that flower for one’s self has major positive benefits
for one’s personality. I have a better shot at selling that 1 carnation when there are 15 people that could purchase it than when there are 10. That mean’s there is a better chance that there will be one more happy person and thus push the consumer confidence index up.
That my middle-class friends, is the power of policy designed to promote income and wealth equality vs just wealth increases. I want me some of that there policy.
A vineyard. Really?