In recessions, people ask: “Where did the wealth go?” For example, it was estimated that between 2006 and 2009 “homeowners’ equity has fallen by over 50 percent, or about six trillion dollars.” Well, that’s a lot of wealth. Where did it go?
The common, but naive, answer is “Rich people took it; in fact, that’s how they got rich in the first place!” Given that most of the wealth was lost by “rich people,” who disproportionately own stock or the other assets whose values fell, that seems unlikely. This view takes wealth as fixed, and therefore zero-sum: for me to be wealthy, you have to be poor. That fallacy underpins many misguided regulatory and tax policies.
Read Full Article »