[PEN-L:29517] Re: Re: Rising stock market redistributes wealth?

[Gar Lipow <lipowg@xxxxxxxxxxxxxx>]

Bill Lear wrote:
> On Friday, August 16, 2002 at 20:36:34 (-0700) Eugene Coyle writes:
>
> > Well, before the market went up your neighbor had $9,999,990 more money (in
> > this asset) than you did.  Afterwards he has $19,999,9980 more.  I think he
> > has done better than you have.
>
>
> No, because distribution of wealth is measured by ratios, not
> differences.  If he has ten times more money than I do at time T, and
> ten times more money at time T+1, there has been no change in
> distribution.
>
>
> Bill

You are forgetting that the wealthy have more disposable income than the
rest, and can afford to put more in the stock market.:

So if you have around 9% of your wealth in the Stock Market, (because
your home, car, household goods, and cash savings constitute most of
your  asset and Richie Richie has 45% of his wealth in the stock market
- then when the stock market doubles you will gain around 9% and Richie
rich will gain by 455 - his ratio of wealth to your wealth increases.

Secondly in a lot of cases stock increases come at the expense of
decreasing wages or barely increasing wages. At any rate the stock
market (during a boom) rises a lot  faster than wages. So if wages
constitute 80% of your income, and wages constitute 1% of richie riches
income then there is another place where his assets increase faster than
yours as a percent of base income.


I'm going to illustrate the first - the consequences of a rich guy being
able to afford to invest a higher percent in the stock market than you can.


Assume you are a member of the coordinator class ( or prosperous
worker). Your assets my be distributed as follows:

Stock Market			$10,000
Home Equity			$50,000
Cash Savings			$25,000
Car
			$19,000
HOusehold goods			$11,000
=======================================
total assets 			$115,000

Now, this is during the boom - pre- rate cuts so:

Assume stock doubles, home equity increases by 7%, cash savings earns 5%
interests. Car and household goods depreciate by 10% each.

So :

Gains in Assets

Stock Market			+$10,000
Home Equity			+$3,500
Cash Savings			+$1,250
Car
			-$1,900
Household goods			-$1,100
=======================================
Net Increase			$9,850

So you (the prosperous worker or coordinator) Increase your assets by
around 8.57 percent. Note that in this example you are a lot better off
than most people.

Your assets at end of year= $115,000+$9,850=$124,850

------------------------------------------------------------------



Now take Rich Rich (Not even super rich - just rich).

Mansion , Yacht, Cars, and household goods 		$3,000,000
Bonds
						$2,500,000
Stock
						$4,500,000
==================================================================
Total 					
	$10,000,000



Gain or Loss in assets during boom


Mansion , Yacht, Car, and household goods		-$,300,000
Bonds
						$125,000
Stock
						$4,500,000
==================================================================
Net increase			
		$4,325,000

percent increase - 43.25 %

Rich Riches assests at end of year= $10,000 + $4,325,000= $14,325,000

Ratio of Richie Richies assets to yours at beginning of year

$10,000,000/ $115,000  	= 	86.96 to 1

Ratio at end of year

$14,325,000/$124,850
= 	114.75 to 1

So richie rich has increasd wealth more than you. The ratio of his
assets to yours has increased.