An Anxious Public
Posted on June 5th, 2008
by Daniel Larison |
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Nobody under 40 really remembers it, but the recession around the middle of Reagan’s first term was really, really, really bad. It licked inflation, but at the cost of sky-high unemployment and the worst recession since the Great Depression. And even then the public’s view of their personal finances was rosier than it is now.
Many more people say that their finances have become worse in the last year rather than better, but that this result is probably quite misleading even if we are trying to compare the public’s mood about the economy today against the mood in the early ’80s. If you own any equities, the last year has been rather ugly on the whole, and now that there are many more stockholders today as a percentage of the general population than there were in 1981 it is not hard to imagine that in a volatile market those stockholders would say that their finances have worsened. Add to these the people caught up in the collapse of the housing bubble, and you will come up with a very large part of the population. So there are a lot of Americans suffering from financial losses or anxiety about potential losses who were not exposed to risk in the same way in the early ’80s. In a roundabout way, this is actually a testament to the success of the economic expansion over the past three decades, since it reflects in part how many more people are benefiting from, while also suffering from the risks of, participating in equities markets.
Of course, electorally the recession of ‘81-’82 was not very good for Republicans in Congress (they lost a net of 27 seats in the House), so as a matter of the political significance of the public’s view of their finances these numbers have to be deeply troubling to the GOP today. This is all the more remarkable given that the economy has not yet gone into recession and may not do so.
There are not significantly more stockholders. Even if you include mutual funds, which you probably shouldn’t for myriad of reasons, the percentage of people with over $10,000 in equites is only 20%. Only 10% of people have of $50,000 in equities. So, no the stock market isn’t that much of an issue. ( http://www.tcf.org/Publications/EconomicsInequality/ClassWarfare/myth3.pdf ) What is a major factor however is that housing has had the worst and most rapid decline since the Great Depression. http://www.marketwatch.com/news/story/housing-deepest-most-rapid-decline/story.aspx?guid=%7BA811AA1E-D0D3-4AA8-917C-95F7F154AA08%7D
I think I hit your spam filter.
What you mean to say is that there are not significsantly more people holding large amounts of stock. But why wouldn’t we count mutual funds? This is part of someone’s portfolio and is exposed to some degree of risk.
People don’t follow mutual funds all that closely, particularly those stuffed in 401(k)s. The quarterly statements are often all that is checked, and even they aren’t scrutinized. It is treated as a long term investment. Even though people are able, you don’t see them regularly evaluating and changing their mutual fund mix. People being influenced by the stock market due to their investments has been a hypothesis hanging out there since about the 90s. There just doesn’t seem to be much backing up. It doesn’t help that it is dependent on the idea that people vote for what’s in their best interests rather than what they believe to be everyone’s best interest.
Can the GDP be trusted as an accurate indicator of the state of the economy?
http://www.mindfully.org/Reform/2008/Pollyanna-Creep-Economy1may08.htm