IN short, the loss of a massive amount of wealth by stockholders and homeowners has produced real dividends for those who had little wealth in stock or housing. Of course, the resulting falloff in consumption from these stockholders and homeowners is throwing the economy into a severe recession, which will threaten the jobs of almost everyone.
However, this just points to the urgency of a large government stimulus package. We need to replace the consumption of stockholders and homeowners with some other form of demand. The government has the capacity to spend enough money to replace this demand (as Fed chairman Ben Bernanke said, we can always print more money). The only question is whether it will have adequate political will.
The real lesson that the public should learn from recent experience is how the income of one segment of society is a cost to others. The wealthy understand this point very well, which is why they design policies (for example trade and immigration policies) that are intended to depress the wages of less-educated workers. If they can get low-paid workers to tend their gardens, serve them meals in restaurants, paint their homes and serve as nannies for their children, it raises their standard of living. The wealthy, along with the highly educated professionals who are largely sheltered from international competition, directly benefit when most workers are forced to accept lower living standards.
In the same vein, when the rich lose wealth it is a gain to everyone else. In short, they have our money. We don’t need them to spend, since the government can spend just as well as rich people do. Unless they can show how their actions are increasing the productive potential of the economy as a whole (that would be quite a joke with regards to the Wall Street gang), the rest of us are made better off when the rich have less.
