On the Wall Street Journal blog The Wealth Report, Robert Frank makes a good point:
There is a growing consensus that the rich have lost about a third of their wealth. First came the U.S. surveys, which show millionaires down about 30%–both in wealth and population–as a result of the global financial crisis. Over the weekend comes news that the Sunday Times Rich List shows that the crisis has wiped out about 155 billion pounds ($227 billion), or a third of the wealth of Britain's 1,000 people. Sir Elton John, for instance, is down 26%.
So if we were to "reset" the world of wealth, we should just knock off about a third….
As Frank points out, wealth isn’t the only thing that has declined: prices are going down. And much of what defines wealth is relative anyway.
If your wealth has fallen 30%, and everyone else's stayed the same, you would feel poorer. But if your wealth fell 30% along with everyone else's, wouldn't you still feel as wealthy as before?
And if the prices of things you buy also have fallen 30% or more, wouldn't your experience of being wealthy stay the same?
It is accepted wisdom that a rising tide lifts all boats. Wouldn't a sinking tide, when all boats are falling, still leave the yachts on top?
I hope someone will tell this to some of the Wall Streeters profiled in this recent New York Magazine cover story:
"I'm not giving to charity this year!" one hedge-fund analyst shouts into the phone, when I ask about Obama's planned tax increases. "When people ask me for money, I tell them, 'If you want me to give you money, send a letter to my senator asking for my taxes to be lowered.' I feel so much less generous right now. If I have to adopt twenty poor families, I want a thank-you note and an update on their lives. At least Sally Struthers gives you an update."