Bubbles and Inequality

Many posts have discussed economic and educational inequality. The effects of inequality reach many corners of American life.

 Bruce Mehlman finds some parallels between the 1920s and the 2020s:

Irrational exuberance about the promise of new innovations & investments powered a post-pandemic decade with exploding wealth, large tax cuts and a speculation bubble that juiced growth and grew income gaps. 2020’s: Irrational exuberance about the economic promise of new innovations & investments are powering a post-pandemic decade explosion of wealth, with tax cuts, fiscal stimulus (and speculation bubbles?) juicing growth and growing income gaps.

 

Whoever borrowed the adjective "roaring" for the decade of the 1920s didn't mean to say that the decade was serenely prosperous, but that it was wild, nerve-wracking, and dangerous, like the far south seas below Australia. 3/x

— David Frum (@davidfrum) May 22, 2021

Stock Ownership

Jeffrey M. Jones at Gallup:

Gallup’s annual update finds that 62% of U.S. adults have money invested in the stock market, including individual stocks, a stock mutual fund or a retirement savings account. The figure is essentially unchanged from last year but reflects a return to stock ownership levels not seen since the Great Recession in 2008.

Stock ownership is highly correlated with income. The vast majority (87%) of upper-income Americans, those with annual household incomes of $100,000 or more, own stock. That compares with 25% of lower-income Americans (those whose annual incomes are less than $40,000). About two-thirds of middle-income Americans, 65%, own stock.

Concentrated Ownership of Stock

Many posts have discussed stocks and the concentration of wealth.

Robert Frank at CNBC:

The wealthiest 10% of Americans now own 89% of all U.S. stocks held by households, a record high that highlights the stock market’s role in increasing wealth inequality.

The top 1% gained more than $6.5 trillion in corporate equities and mutual fund wealth during the Covid-19 pandemic, while the bottom 90% added $1.2 trillion, according to the latest data from the Federal Reserve. The share of corporate equities and mutual funds owned by the top 10% reached the record high in the second quarter, while the bottom 90% of Americans held about 11% of individually held stocks, down from 12% before the pandemic.

The stock market, which has nearly doubled since the March 2020 drop and is up nearly 40% since January 2020, was the main source of wealth creation in America during the pandemic — as well as the main driver of inequality. The total wealth of the top 1% now tops 32%, a record, according to the Fed data. Nearly 70% of their wealth gains over the past year and a half — one of the fastest wealth booms in recent history — came from stocks.

Data on Stock Ownership

From USA Facts: 

More Americans than ever are invested in the stock market. Data from the Federal Reserve's Survey of Consumer Finances shows that 53% of all US families owned publicly traded stock in some form in 2019. That is up from 32% in 1989. The median stock value held among households in the market was $40,000.

...

Between 1989 and 2019, the share of families with direct stock holdings actually fell from 17% to 15%. Instead, indirect investment was what drove the rise in total stock ownership, partly due to innovations like the 1981 Internal Revenue Service rules allowing 401(k) contributions to be deducted from paychecks; the 1993 development of exchange-traded funds; and the creation of Roth IRA accounts in 1997.

...

In 2019, only 15% percent of families in the bottom 20% of income earners held stock in some form, while 92% percent of families in the top 10% of the income distribution owned stock. Around 56% of families in the middle quintile — or the middle class — owned stock in 2019.

The gaps were even greater for direct stock ownership. Only 5% of families in the bottom quintile held stocks directly, while 12% of middle-class families and 44% of families in top 10% did.

...

Because income and net worth are highly correlated with race and ethnicity, there are gaps in the tendency to own stock between white, Black, and Hispanic families as well. While 61% of white, non-Hispanic families owned some form of stock in 2019, that figure was only 34% for Black families and 24% for Hispanic families. The relative gaps for direct stock ownership are even larger.