An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
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Monday, February 7, 2022
How to lie with inequality statistics — David F. Ruccio
Our research demonstrates that wealthier and less-wealthy people own different types of assets: the middle class has a higher share of its wealth in housing, whereas the rich own more stock. An important consequence of this finding is that housing booms lead to wealth gains for leveraged middle-class households and tend to decrease wealth inequality. Stock market booms primarily boost the wealth at the top of the wealth distribution where portfolios are dominated by listed and unlisted business equity, thereby, increasing wealth inequality. The existence of these different portfolios means that wealth inequality is essentially a race between the housing market and the stock market. Over extended periods in postwar American history, that race has been the predominant driver of shifts in the U.S. distribution of wealth. —Harvard Business Review
Recently, this comment from Canada's OSFI (Office of the Superintendent of Financial Institutions).
Banking watchdog warns housing prices could plunge 20% when 'speculative fever' breaks
Now, given that a lot of people investing in real estate have about that much equity in their homes, a 20% decline in house prices will wipe out all their equity and possibly leave them underwater. (We don't have jingle mail in Canada, our mortgages are full-recourse.)
Incidentally, some of these people buying real estate in places like Toronto were counting on paying their mortgages with Airbnb rentals. Then Covid hit.
So, basically financially illiterate people gambling on overpriced real estate with high leverage until they get wiped out. Then some economist comes along and plots their wealth on a graph as compared to some other investors who were more prudent with their investments or their investment timing. A lot of wealth inequality is just that, people being stupid.
Also, crypto. 50% down lately. The economists will put those people on those wealth charts also. Or people who got their crypto wallets stolen. They'll also be on those charts too. Of course, the people who stole their wallets will be on those charts also, but higher up on the charts.
Different asset classes...
ReplyDeleteOur research demonstrates that wealthier and less-wealthy people own different types of assets: the middle class has a higher share of its wealth in housing, whereas the rich own more stock. An important consequence of this finding is that housing booms lead to wealth gains for leveraged middle-class households and tend to decrease wealth inequality. Stock market booms primarily boost the wealth at the top of the wealth distribution where portfolios are dominated by listed and unlisted business equity, thereby, increasing wealth inequality. The existence of these different portfolios means that wealth inequality is essentially a race between the housing market and the stock market. Over extended periods in postwar American history, that race has been the predominant driver of shifts in the U.S. distribution of wealth. —Harvard Business Review
source: Research: How the Financial Crisis Drastically Increased Wealth Inequality in the U.S.
Recently, this comment from Canada's OSFI (Office of the Superintendent of Financial Institutions).
Banking watchdog warns housing prices could plunge 20% when 'speculative fever' breaks
Now, given that a lot of people investing in real estate have about that much equity in their homes, a 20% decline in house prices will wipe out all their equity and possibly leave them underwater. (We don't have jingle mail in Canada, our mortgages are full-recourse.)
Incidentally, some of these people buying real estate in places like Toronto were counting on paying their mortgages with Airbnb rentals. Then Covid hit.
So, basically financially illiterate people gambling on overpriced real estate with high leverage until they get wiped out. Then some economist comes along and plots their wealth on a graph as compared to some other investors who were more prudent with their investments or their investment timing. A lot of wealth inequality is just that, people being stupid.
Also, crypto. 50% down lately. The economists will put those people on those wealth charts also. Or people who got their crypto wallets stolen. They'll also be on those charts too. Of course, the people who stole their wallets will be on those charts also, but higher up on the charts.