Who really benefits from a rise in the Dow?

Forget the maxim that market gains lift all boats. It's the one percent who actually cashes in

Published March 11, 2013 3:20PM (EDT)

This originally appeared on Jared Bernstein's blog, On the Economy.  

I was listening to the radio this weekend and heard some equity market cheerleaders going on about how the melt-up in the stock market lifts almost everybody’s fortunes.  While I agree that it’s important not just for the top 1%—a lot of pension funds and 401(k)’s get a boost from the bull—the vast majority of the value of the stock market is held by the wealthiest households.   I’m sure that’s a big “duh” for a lot of readers but the idea that the market lifts all boats is probably more pervasive than you think.

The figure below comes from wealth scholar Ed Wolff through EPI’s State of Working America (you should really just read their wealth chapter—one stop shopping for this info).  It shows who owns stock market wealth over time.  The little smudge at the bottom is the bottom 40% of households, and the middle fifth doesn’t do much better.  The top 1% holds over a third of equity market wealth and the top 10% holds about 80%.

What does that mean in dollar terms?  In 2010, according to Wolff’s analysis, the stock holdings of the middle fifth were worth about $9,000.  The holdings of the top 10% were worth $500,000, and those of the top 1%: $3.5 million.

So how come I had to listen to commentators going on about how 50% of households own stocks now, up from 30% in the late 1980s?  Because they’re not talking about stock wealth; they’re just talking about shares, with all of that increase coming from retirement accounts.  If you own one share or a thousand shares, you’re counted the same in that calculation.

OK…and like I said, it’s true that a lot more people are in the market now.  But unless you want to mislead, you’ve got to be careful to also make the points from the graph below, because your increase in wealth is of course proportional to your holdings.

So, go ahead and cheer the climbing market, but don’t kid yourself that it’s raining down wealth on everybody.


By Jared Bernstein

Jared Bernstein joined the Center on Budget and Policy Priorities in May 2011 as a Senior Fellow. From 2009 to 2011, Bernstein was the Chief Economist and Economic Adviser to Vice President Joe Biden. Follow his work via Twitter at @econjared and @centeronbudget.

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