The same is true for stocks. When someone buys a stock they are buying the net present value of future returns from that company. If I buy GE stock for $9 a share, I am betting that the future earnings of GE exceed the price I am paying. Because the future earnings of GE, and for that matter most U.S. corporations, are essentially the same today as they were two years ago, someone who buys GE today is a lot better off than someone who bought it in December 2007 at $37 a share. Just like housing market, the fall in the stock market represents a shift in wealth from current owners to future buyers. People who buy stocks today get the same asset for $3.6 trillion less than those who purchased stock at the peak of the bubble.

To be sure, the financial crisis hasn't been a pretty picture for owners of stocks, houses, or other assets. And there is no denying that some people have suffered real pain and hardship, including the millions who have lost their jobs, been evicted from their houses, or seen their retirement savings plummet. But as painful as this situation is, it needs to be looked at for what it really is -- a transfer payment from owners to buyers -- and not what it is being portrayed as, which is a dramatic decline in societal wealth.

The real issue is who bought high and who is now able to buy low. Generally, older people who hoped to sell their assets at high prices have been made worse off. But don't go clamoring for an increase in Social Security benefits for the AARP set quite yet. 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 same applies to equity values. Even with the recent bear market, the S&P 500 is still higher than it would be had it increased from 1985 to the present at the rate it did from 1950 to 1985. Indeed, from 1980 to the present, the S&P 500 has increased in value 30 percent more than the economy as a whole.

The second set of "losers" are the rich. The fact that the top 10 percent of American households own at least 70 percent of American assets means that the recent decline in asset prices hit the richest the hardest. This isn't to say that most are not still well off. While the market value of Warren Buffet's wealth fell by a whopping $25 billion, he still managed to hold on to assets that are worth $37 billion.

The fact that the losses are concentrated among the rich and baby boomers is not a bad thing. 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. Likewise, if the collapse in stock prices means that more people now in their 50s and 60s (including me) have to work an extra few years before retiring, it is all to the good. It is grossly irresponsible for the baby boom generation to expect Generations X and Y to be saddled with our national debt, our trade debt, and our infrastructure debt -- and the retirement debt created by baby boomers enjoying long retirements supported by future tax increases on their children. So let's stop talking about wealth loss, and let's get to work creating the kind of world we can be proud to pass on to our children.



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