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Date: Thu, 10 Sep 1998 07:15:51 +0200
From: "[iso-8859-1] Arno Mong Daastøl" <[EMAIL PROTECTED]>
Reply-To: Forum on Labor in the Global Economy <[EMAIL PROTECTED]>
To: [EMAIL PROTECTED]
Subject: Business Week, Who Got Rich in the Stock Market Boom
Who Got Rich in the Stock Market Boom
Share of the $3.1 trillion increase in stock market holdings by U.S.
households
between 1989 and 1997. Includes all shares owned by households, directly and
indirectly. Holdings in 1989 were stated in 1997 dollars.
Richest 10% of families Rest of Country
85% 15%
DATA: EDWARD N. WOLFF, NEW YORK UNIVERSITY
Updated Sept. 3, 1998 by bwwebmaster
Copyright 1998, by The McGraw-Hill Companies Inc. All rights reserved
STOCKS: A SINKING TIDE DOES NOT LOWER ALL BOATS
The middle class owns so little stock, its exposure is minimal
Throughout the 1990s, average Americans have piled into the stock market
through mutual funds, 401(k)s, and Individual Retirement Accounts. America's
love affair with stocks made small investors a mainstay of the bull market.
Many thinkers even have heralded the dawn of a people's capitalism, one that
chips away at the elitism of corporate ownership and wealthy individual
investors. So when the market heads south, middle-class America gets whacked
in the wallet just like the tycoons at the top, right?
Not quite. A new study by New York University economist Edward N. Wolff
shows that most Americans don't have enough stock, even including shares
held indirectly through mutual funds, to share in much of the gain--or in
the pain either. The study shows that the wealthiest 10% of households
enjoyed 85% of the stock market gains from 1989 until the end of 1997, when
the markets stood at about where they were after the Aug. 31 sell-off,
according to Wolff. His study is being published on Labor Day in The State
of Working America, a book put out by the Economic Policy Institute (EPI), a
liberal Washington think tank.
Says John Ray, an economist at the Investment Company Institute, a trade
group of the mutual-fund industry: ''It's not terribly surprising that the
top 10% has enjoyed most of the gains from the market, because they still
have most of the assets in the U.S.''
GROWING RANKS. Still, Wolff's study challenges the conventional wisdom about
broad stock ownership. It's true that the ranks of small investors have
multiplied rapidly: Some 40% of all households owned some stock in 1995, the
latest year available, vs. 32% in 1989, according to Federal Reserve Board
data. These figures include all stock held directly or indirectly by
households.
But that leaves a solid majority of Americans who own no stock. And those
families that do invest don't have enough money in the stock market to
reward them with a significant share of the total. Just 29% of households
own stock worth more than $5,000, Wolff finds.
Or take the middle fifth of households. Their average stock holdings, when
adjusted for inflation, have doubled--but from only $4,000 in 1989 to just
$8,000 in 1997. And those in the bottom 40% of households owned only $1,600,
says Wolff.
As a result, most of the benefits of the 1990s bull market have bypassed
average Americans. At the end of 1997, U.S. households owned $5.9 trillion
worth of stock, giving them an inflation-adjusted gain of $3.1 trillion
since 1989, Wolff concludes. But because middle-class America's stock
holdings still amount to so little, the richest 1% of households received
42.5% of that $3.1 trillion (chart). The next wealthiest 9% acquired 43%,
leaving the bottom 90% of households to divide less than 15%. The bottom 40%
received just 1% of the total. ''There were many newcomers to the stock
market in the 1990s, but their holdings are still relatively small,'' says
James M. Poterba, an economist at Massachusetts Institute of Technology who
also has done studies of stock ownership.
DEBT FACTOR. In fact, the total net worth of average Americans hasn't budged
since 1989, despite the bull market. The reason: Most families have taken on
additional debt, and that outweighs any stock gains. In 1997, the middle
fifth of households had a net worth--assets less debts--of $56,000, down
from $58,000 in 1989, after adjusting for inflation, Wolff found.
The same pattern holds even for the 10% of families just under the
wealthiest 10%. Their stock holdings averaged $35,000 in 1997, a 40% gain
from 1989. But their net worth nonetheless slipped by 6%, adjusted for
inflation.
The good news in all this, of course, is that even a further slump in stocks
will not directly hurt most families very much. Without question, homes, not
stocks, remain by far the biggest financial asset most American families
have. So today's complacent inflation and low interest rates are much more
important than the stock market to their spending power, points out EPI
economist John Schmitt, who helped Wolff analyze the data on wealth.
Many middle-class Americans are still salting away plenty of money into
stocks through 401(k)s and other funds. Since a lot of this investment
involves long-term savings for retirement, even more bad news from the
market probably won't stop the slow spread of stock ownership. But given the
still small stake that most Americans have today, true democratization of
the market remains many years away.
By Aaron Bernstein in Washington
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