Does inequality cause bubbles or vice versa
An investment banker, turned psychologist, Eric Schoenberg, weighs in on a question I asked in a previous post.
"Thus, the answer to your other question is that income concentration both causes and is caused by bubbles. It causes bubbles to the extent that it makes more salient how far ahead the economic winners are, and, empirically, certainly in my studies and, though I haven't seen any papers to this effect, quite clearly in the real world, bubbles generate greater inequality as well."
Check out the details at the link below from Mark Thoma's blog.
"Thus, the answer to your other question is that income concentration both causes and is caused by bubbles. It causes bubbles to the extent that it makes more salient how far ahead the economic winners are, and, empirically, certainly in my studies and, though I haven't seen any papers to this effect, quite clearly in the real world, bubbles generate greater inequality as well."
Check out the details at the link below from Mark Thoma's blog.
"It Might Appear that Some Agents become Risk-Loving"
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They embrace it, eh?
thanks, interesting questions and response.
January 4, 2009 2:04 PM | Reply | Permalink
It's interesting that people will often say, what they would do with X amount of $, but when they start to get to that goal, they realize how little that amount is in comparison to their new socio-economic cohorts. I would think that the thesis is correct: that income concentration, (disparity), causes bubbles, and bubbles in turn create more disparity. More especially so after the bubble bursts, as those still solvent+, can pick up assets at a discount. See: Warren Buffet
January 5, 2009 1:29 AM | Reply | Permalink