In the current issue of the ECONOMICS REPORTING REVIEW, Dean Baker says:
>>It is also important to note that the stock market is redistributive, transferring wealth from those who hold little or no stock (approximately 75 percent of the population), to those who hold large amounts of stock.<<
I asked him:
> How is it redistributive? what's the logic behind this?
>
> If the stock market is high due to high earnings, that can clearly be
> redistributive, since high earnings result from low wages relative to labor
> productivity. But if the stock market is high due to a high price/earnings
> ratio, that's a bubble, so that those who own the stock can't all benefit
> from the high prices without selling their stock, driving the p/e ratio back
> down. It's just a paper redistribution.
His answer:
If the bubble persists, so that many current stockholders can sell, then the redistribution is going from future stockholders to current stock holders. If they had managed to privatize SS [social security] in 1998, then it would have been a big chunk of change going from SS to stockholders at the time. I did a short paper on this which is on our website.
me again:
what this says is that if the government had a policy that encouraged a rise in the stock-market, it would simply allow the big owners to sell off their holdings, redistributing from new owners or taxpayers.
Jim Devine [EMAIL PROTECTED] & http://bellarmine.lmu.edu/~jdevine
