The Rich Man’s Recovery

Middle class Americans typically have a huge share of their wealth bound up in the house that they live in, while rich people own stocks and other financial instruments. So this Pew report finding that the top seven percent of households have seen their wealth soar as the stock market recovers even as everyone else stagnates should come as no surprise.

But it is an important element of the political economy of the recovery. The data show very clearly that a severe recession is terrible for all classes. Wage earners are more exposed to unemployment, but financial asset values crash even more severely than the labor market so everyone ends up taking it on the chin. But the rebound isn’t a symmetrical process. As long as the economy and employment level are growing, financial asset prices will go up too. If the growth remains modest rather than rapid, that creates a large overhand of unemployment which is disastrous to the jobless but also constrains wages for those who do have jobs. For most people, that’s a disaster. But it’s okay for retirees and it’s just great for people who own lots of stock since it means high profit margins. It’d be an exaggeration to say that a growth spurt fast enough to heal the labor market would actually be bad for major stockowners, but it’s not necessary for securing their financial interests so they can feel free to indulge an enormous amount of risk aversion about bolder policy thinking. Meanwhile for basic wage earning people, macroeconomic stabilization policy remains completely under the political radar. You get to watch Democrats and Republicans argue about competing deficit reduction agendas with nobody so much as mentioning the possibility of engaging in more robust fiscal and monetary stimulus.