Just as the US consumption is supposedly driving the world economy, could we not assume that the small fraction of people who own stock drive the US economy as the effect of their consumption ripples through the economy?
Doug Henwood wrote:
>
> The inflow of capital into the U.S. has allowed for personal and
> corporate borrowing. I'd say those inflows, rather than the wealth
> effect, are responsible for keeping the U.S. expansion going so far
> so long. And insofar as the inflows have pushed the stock market
> higher, they're the cause of the wealth effect, if such a thing even
> exists.
>
> It's not me who questions the wealth effect; see:
>
> Poterba, James M., and Andrew A. Samwick (1995). "Stock Ownership
> Patterns, Stock Market Fluctuations, and Consumption," Brookings
> Papers on Economic Activity 2, pp. 295-372 [which argues that
> stockholdings are too concentrated to have much of an effect on
> consumption, even luxury consumption]
>
> and
>
> Ludvigson, Sydney, and Charles Steindel (1999), "How Important Is the
> Stock Market Effect on Consumption?," Federal Reserve Bank of New
> York Economic Policy Review, July
> <http://www.ny.frb.org/rmaghome/econ_pol/799lud.pdf> [which answers
> the question with a "hard to say"]
>
> Doug
--
Michael Perelman Economics Department California State University michael at ecst.csuchico.edu Chico, CA 95929 530-898-5321 fax 530-898-5901