>Let's not forget the recent words of The Man Himself, as cited on
>the World Socialist Web Site: "In the course of a speech to the
>Economic Club in New York City January 13, warning about the
>possible consequences of a soaring stock market, Greenspan noted
>that fully one-fourth of annual economic growth in the US since 1996
>— about one percentage point of the 4 percent growth rate — has come
>from the 'wealth effect' of well-heeled consumers spending more
>because of their rising investment portfolios."
I think AG is greatly overstating things. There's no proof that the stock market effect on consumption is anything like that strong. See, for example, Federal Reserve Bank of New York research on this topic at <http://www.ny.frb.org/rmaghome/econ_pol/799lud.pdf>. The abstract:
>Economic Policy Review
>July 1999
>Volume 5, Number 2
>
>How Important Is the Stock Market Effect on Consumption?
>
>Sydney Ludvigson and Charles Steindel
>
>Many argue that the astonishing growth in Americans' stock
>portfolios in the 1990s has been a major force behind the growth of
>consumer spending. This article reviews the relationship between
>stock market movements and consumption. Using various econometric
>techniques and specifications, the authors find that the propensity
>to consume out of aggregate household wealth has exhibited
>instability over the postwar period. They also show that the dynamic
>response of consumption growth to an unexpected change in wealth is
>extremely short-lived, implying that forecasts of consumption growth
>one or more quarters ahead are not typically improved by accounting
>for changes in existing wealth. Finally, the impact effect of a
>wealth shock on consumption growth, while statistically positive, is
>found to be uncertain. Although recent market gains have provided
>support for consumer spending, the authors' findings are too limited
>to encourage reliance on estimates of the stock market effect in
>macroeconomic forecasts.