[PEN-L:29447] Rising stock market redistributes wealth?

[Bill Lear <rael@xxxxxxxxxx>]

In the Dean Baker's Economic Reporting Review of July 22, 2002, he
makes the following claim:

     A rising  stock market is primarily a  redistribution from people
     who  own little or  no stock,  who are  mostly middle  income and
     poor, to  people who own  a great deal  of stock, who  are mostly
     rich.

So if I own 10 shares of stock at 1 dollar, and my neighbor owns 10
million, if the price of a share goes up by 1 dollar, my increase is
10 dollars, and my neighbor's is 10 million.  I feel a bit dense, but
how, without information on who is spending the money on stocks (and
perhaps other information), can we conclude that this is a
redistribution?  Each of us is 10 times richer than we were.  I now
have 20 dollars' worth of stock and he has 20 million dollars' worth.
Our wealth ratios have remained constant at a million to one, and
ratios, I thought, were the way distribution of wealth was gauged.

Also, is it conversely true that a falling stock market redistributes
wealth in the other direction?


Bill