Am I wrong, or does the popular press have a strangely narrow view of inflation? When asset prices go up relative to wages, fewer people can afford to buy assets. How is this different from the conventional view that when consumables prices go up, people can afford fewer consumables? Why is one good, the other bad?

-- TP

First let me state:

Best...headline...ever!

Then let me ask, did you see Ron Paul questioning Ben Benanke a few weeks ago? He states that inflation, a monetary phonomenon, always causes a redistribution of wealth from the less to the more wealthy. I think this is true recently and seems intuitively correct.

Is it?

Dean,

Is it really accurate to characterize the stock market as the piggy bank of billiares? What about pension funds, 401ks, and the millions of normal Americans who own stock? It seems to me that you're (once again) overreaching to make a weak contrarian point. You also forgot to call out all media for failing to report "Local House Burns Down: Neighborhood Benefits From Cheaper Property" everytime somebodies house burns to the ground.

Dean:

It is important to note that stocks are synthetic assets priced and valued via collective assumptions (memes).

Stock market up, good....? Stock market down, bad....? Cultural values....? Pension funds, 401Ks, and millions of "normal" Americans (as opposeed to abnormal, black, gay, handicapped...?) who own stock....? No one has forced them to buy stocks, they have assumed this risk willingly and with a great deal of self interest. A stock market collapse will redistribute their wealth to the abnormal Americans, those who don't exactly fit the lable of being normal...

Best regards,

Econolicious

Sorry the prev note was meant to address AO's comment...

Econolicious

Certainly tens of millions of middle income people hold stock either directly or through retirement funds. They are hurt by a fall in the market.

My point is that people are also helped. An analogy I sometimes use is counterfeit money. Suppose that there is $10 trllion of counterfeit money out there. Imagine Bill Gates and his friends hols $5 trillion of it and the remaining $5 trillion is distributed unevenly among the rest of the population.

Now suppose the FBI exposes the counterfeits and all this money is now worthless. Bill Gates and friends take the biggest hit, but anyone who held some of the rest of the $5 trillion also had a loss. The gainers are the people who held little or no counterfeit money, who will now presumably be able to buy goods and services at lower prices, since counterfeit dollars will no longer be inflationg prices.

Very loosely, this is the story of a stock market crash.

Econoliscious,

Normal in this context means average, or near the median. Because we're talking about wealth, it means people with normal, or median wealth, for example, the middle quintile, or 2nd and 3rd quartile.

Dean,

I follow your analogy and your reasoning, but I don't think it applies to the story of a stock market crash. Lower wealth individuals who hold no stocks, either directly or indirectly through their 401ks or pensions, would make their claims on the economy's output via their real wage. Falling stock prices make stocks cheaper, not groceries, gasoline, or anything these low-wealth individuals spend their wages on. A decrease in stock prices would not effect the real wages of an individual and would not effect their claim on economic output.

What it would change is the percent of the economy that their unchanged real wage represents. The question is, is this worth reporting? Everytime something bad happens to someone, it makes others relatively better off. The counterfeit analogy feels good to those who worry about inequality because it compares stock ownership with wrongdoing; the rich "stealing" scarce resources from the poor. A more apt comparison is to look at the drop in the price of an individual stock. If GM makes an announcement tomorrow that brings it's share price crashing down, does that make any unwealthy individual who does not invest in the stock market any better off? No. Nobodies real wages go up, and if you are unwealthy, and don't own stock, you won't be buying GM stock at the cheaper price. Now if 100 GM-sized companies crash, does it make any unwealthy people better off? No. They may feel better because wealthier individuals have less wealth, but their consumption is uneffected (unless of course there are massive layoffs, in which case they are worse off)
The media has no obligation, and indeed no reason, to report that some Americans feel better everytime other Americans suffer no more than they would report my relief that it was my neighbors house, not mine, that was robbed last night.

AO,

If my house burns down, there are fewer resources afterward, and my misery won't make you better off: that's true. But if my shares of stock lose value, there are not fewer resources, only my claims on existing resources go down. If markets work the way they are generally supposed to work, your claim share should go up.

Dean,

Unwealthy individuals who don't own stock would claim their existing share of resources through their real wage. A stock market crash does nothing to help their real wage. It increases the percentage of the economy that the real wage represents, but why is that good news? "Their claim share should go up", ok... are they better off? Are their real wages affected? Does their consumption or utility go up? No. Some people have been made worse off, unwealthy people have not been made better off in any real way.
This is not the media failing to report on some significant or meaningful aspect of a stock market crash that helps poor people, it's you stretching to find a reason to celebrate "wealthy" individuals losing money.

AO,

I think Michael's point is on the nose. Wealthy individuals consume a wide range of goods that overlap with the consumption of the unwashed masses, most obviously land. But they also go to restauarants, movies, sporting events, and engage in many other activities where their demand could push up prices for goods and services that the masses might buy. So, yes, when the rich fewer claims to paper wealth, everyone else is better off -- just like when we destroy counterfeit money.

On this matter of "who is rich," please consult:

The Global Rich List
http://www.globalrichlist.com

I am a working class, high school diploma, single woman who is trying to keep myself out of structural feminized elderpoverty in the future by careful translation of income into assets.

I take risks by owning stock (mostly in the form of no-load index funds). The schadenfreude saturating this discussion is notable, but I'm not sure how it cares a whit about me. Lacking the accountants/lawyers of the rich and the disengagement of the poor, I suffer whether the market rises or falls. This is why I use indexing to grow my personal assets. I'm neither rich nor poor, I'm in the middle.

Interesting how this discussion absolutely overlooks the middle class with its focus on the evil rich and the poor poor poor.