WSJ on wealth

Doug Henwood dhenwood at panix.com
Wed Jan 19 15:30:06 PST 2000


Seth Ackerman wrote:


>But you were just saying that debt has risen because people are
>borrowing against the value of their stock. That debt represents
>consumption, doesn't it? So how can there not be a "wealth effect" that
>shows up as higher consumption?

I was responding to Jordan's example. How common it is no one really knows. The record for a strong stock market influence on consumption (or investment) is mixed at best - mostly because stock ownership is so concentrated. Things may be different in this cycle because the market has risen so dramatically, and because more people are involved than before - but Poterba & Samwick (Brookings Papers, 1995) were unable to find a strong influence even on luxury consumption.

Doug



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