The Benefits of a Financial Crisis – increased equality?
In the tidal wave of articles about the current financial crisis, I haven’t read much that is actually original or interesting. This article in Atlantic Monthly arguing that the entire crisis really just represents a transfer of wealth from owners to buyers (and hopefully from old to young) is an exception. The author Rob Atkinson starts out by saying:
My house is still here. The companies in which my mutual funds own stock are still there. All that changed was this: The prices at which American asset owners can sell their assets fell by $11.2 trillion. But the prices that buyers have to pay for those assets also fell by $11.2 trillion. And that’s not necessarily a bad thing.
Not a bad thing because the fall in asset prices will let more people make the kinds of investments that generate serious amounts of passive income – homes and stocks. And moreover, we don’t need to feel too badly for many of the people who’ve “lost” much of the value of their homes:
For most older Americans who bought houses before 2000, home values are exactly where they would be had the price increases between 1987 and 2002 continued in a straight line, instead of booming from 2002 to 2005 and subsequently crashing […] The last several decades have seen the wealthiest Americans get wealthier much faster than the average American. If they lose more now, it just helps reverse a longstanding inequitable trend.
A very interesting and very positive take on things. It raises lots of questions, like: How will the crisis affect the people who didn’t have these assets to begin with, and still won’t be able to buy them even as prices come down? What will the effect on global equality be, even if domestic inequality decreases? What’s the situation like in Canada, where the housing market wasn’t as inflated? I’ve seen prices coming down a bit in Vancouver, but certainly not down to amounts that will really open the market up to lots of new middle-class buyers (to say nothing of the working poor). Still, an interesting take – and complemented by this NYTimes piece on The $100 House.