Skip to content

The Benefits of a Financial Crisis – increased equality?

March 20, 2009

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.

3 Comments leave one →
  1. March 23, 2009 12:28 pm

    yep, the argument that the financial crisis will transfer wealth from rich to poor is definitely a tenuous one – but unique, and i’m glad it inspired you both to comment.

    the part of his argument that i found the most interesting was his statistics on how much the current bottoming out of the housing and stock markets has actually just brought them back to where they would have been had we followed a straight line upwards since an earlier period. it’s incredible how extreme the growth in “value” was in the years leading up to the crash, and how obviously artificial and volatile that growth was.

    i loved how jon stewart framed the situation leading up to the crisis in his now notorious interview with jim cramer of CNBC – he pointed out that “ordinary” american pensioners were basically capitalizing the financial sector’s adventure. this is true – but the inequality and the advantage taken of the masses isn’t just internal to the US. the rest of the world has been capitalizing the West’s adventures with markets and growth for a very long time. unless the financial crisis (and response to it) does something to change that situation, i fear we still won’t have understood or dealt with the real artificiality and precariousness of our wealth and growth.

  2. March 21, 2009 4:18 pm

    Not having any specific figures to hand, I’m inclined to agree with reneethewriter: I just don’t see much of a levelling influence at work here. Yeah, house prices may be falling, but so are the employment figures – and those have more of an immediate impact on the poor than housing prices. Some people live from pay cheque to pay cheque, and losing their job will (or has) pushed them over the edge. Yet by Atkinson’s methodology, those people may not be “big” losers – because they didn’t have investments or real estate that crashed last year.

    To be clear, there is not much of a “transfer” going on. Atkinson’s argument is basically that when the market tanks, the rich lose faster than the poor. And that’s a pretty tenuous argument. For one thing, EVERYBODY is losing here. As you say, some people didn’t have many assets to begin with. Therefore, they may not have lost as much in absolute terms, but they’re also the least able to invest in the “buy now!” hype that Atkinson indulges in. The people who can buy a few thousand depressed GE stocks today are, for the most part, the same ones who could have bought a few hundred inflated GE stocks last year.

    For another thing, there ARE actual, material transfers going on. And, with almost no exception, those transfers are from public funds (gathered from ALL taxpayers) into professional and upper-class hands, i.e. to financial institutions, the auto industry, and essentially most of the targets of the major bailout programs. Those transfers may not be enough to arrest the economic upheaval (many are now predicting the opposite), but they’re definitely transfers, and they’re definitely tending in one direction.

  3. reneethewriter permalink
    March 20, 2009 11:20 pm

    Interesting post, Reilly…i always have time for the Atlantic, but often do find its ‘set pieces’ myopic on the continuing great chasm in the U.S. labour market that is related to economic class and education: the situation of young black males.

    My read of the data has just begun, but today at Huff Post, John Ridley cites The January 2009 numbers from the US Bureau of Labor Statistics : bleak.

    “Nearly 12.6 per cent of all black Americans have lost their jobs since January 2008. Contrast that with 9.7 per cent of Hispanics and only 6.9 percent of white Americans.”

    “Going inside the numbers, a survey by the Center for Labor Market Studies at Northeastern University in Boston finds that employment among black men alone has dropped by almost 8 percent since November of 2007. In fact, over the last decade the employment rate for black men ages 20-24 has collapsed from 68 percent to only 51 percent. ”

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: