Asset Prices and Inequality Joseph Ament · 2016. 11. 2. · Asset Prices and Inequality Joseph Ament Ph.D. Student The University of Vermont Joshua Farley

Asset Prices and Inequality

Joseph Ament

Ph.D. Student

The University of VermontJoshua Farley

.28”

(Oxfam,

2015)

Inequality

=

3,600,000,00038

8

62+$542

bn

- $1 trillion

244

miles!

to

Younker

s

(Wilkinson & Pickett, 2012)

Who Cares?

Who Cares?

(Wilkinson & Pickett, 2012)

“The workers are important for the market

as buyers of commodities. But as sellers of

their commodity—labor power—capitalist

society has the tendency to restrict them to

their minimum price” (Marx, 391).

In fact…there is solid evidence, coming from

places like the International Monetary Fund, that

high inequality is a drag on growth, and that

redistribution can be good for the economy”

(Krugman, 2008).

“Greater equality and improved

economic performance are

complements” (Stiglitz).

Just Distribution!

Who Cares?

Asset Prices

Average Home Price in US (1975-2014)

Asset Prices

“…Asset prices become relevant only to the extent

they may signal inflationary or deflationary forces.”

Asset Price Inflation vs. CPI

(Bernanke, 2000; Inflation)

API is viewed as a lever through which the “toxic side

effects” of CPI can be manipulated “without getting into

the business of deciding what is” an appropriate price.

Debt?

Debt

Mortgage

Debt

Outstanding

(billions)

US Home

Prices

Debt

(DebtDeflation)

“A property today is worth as much as banks will lend

against it.”

Debt

(DebtDeflation; Hudson, 2010)

Indebtedness in US

(Farley, et. al, 2014)

Financial Sector as % of GDP

Indebtedness in US

Financialization of US Economy

The Era of De-Growth?

GDP

GDP less FIRE

Time

$US

~2% of

population

~20% of GDP

Wealth Transfer

Decoupling?

Inequality and Mortgage Debt

interest & fees

Monetary Policyto

Curb Speculation and

Reduce FIRE Size

What Are We To Do?

Tax Policyto

Reduce Inequality & Regulate

Interest Policyto

Stabilize and RegulateThank

You!

itp

Asset

Price

Inflatio

n

tcg

Income

Inequalit

y

As interest rates stay low, taxes are shifted to structure, and

capital gains stay low, prices stay high. This trinity creates the

conditions for credit to drive a positive feedback loop that

concentrates wealth to the owners of assets.

Inequality and Asset Prices

Credit

1. "An Economy for the 1%." 210 Oxfam Briefing Paper. Oxfam International, January 16, 2016.

2. Wilkinson, Richard G., and Kate Pickett. "Chapter 2: Poverty or Inequality."The Spirit Level: Why Equality Is Better for Everyone. London: Penguin, 2010. N. pp. 20-21. Print

3. Marx, Karl. Capital. Volume 2. London, 1930. p. 391. Print4. Stiglitz, Joseph E. "Inequality and Economic Growth." The Price of Inequality:. New York:

W.W. Norton, 2012. Print.5. Krugman, Paul. "Inequality Is a Drag." The New York Times. The New York Times, 07 Aug.

2014. Web. 23 June 2016.6. Farley, Joshua, Abdon Schmitt, Matthew Burke, and Marigo Farr. "Extending Market

Allocation to Ecosystem Services: Moral and Practical Implications on a Full and Unequal Planet.” Ecological Economics 117 (2015): 244-52. Web.

7. Bernanke, Ben, and Mark Gertler. "Monetary Policy and Asset Price Volatility." (2000): Web.8. Keen, Steve. "A Bubble So Big We Can't Even See It." Debt Deflation. Real World Economic

Review. Web.9. Hudson, Michael. "The Transition from Industrial Capitalism to a Financialized Bubble

Economy." SSRN Electronic Journal SSRN Journal (n.d.): Web.

References

Tax Theory…

“…interest rates will tend to rise

during (inflationary) asset price

booms and fall during

(deflationary) asset price busts.”

itp Ptcg

Of Interest to Bernanke?

(Bernanke, 2000)

What Causes Inequality?

Piketty

When r>g: inherited wealth grows faster than output and income: Horatio Alger becomes RIP

…but Piketty estimates wealth using stock market valuations. The Cambridge Debate: the same combination of k and l can have the lowest cost at different rates of profit. No clear relationship between value of capital and profitability. Piketty’s key assumption about how wages and profits respond to the size of the capital stock does not apply.

Parramore

PPI: Kaldor-Hicks

“The goal of economics

becomes the maximization

of the monetary value of

goods and services net of

costs…given existing

distributions of purchasing

power”

Farley et. al., 2014

The Kuznets

Curve

“The refusal of modern economists to

make ‘interpersonal comparisons of

utility’ means in effect that they use

wealth rather than happiness as the

criterion for an efficient allocation of

resources.”

Why Ignored?

P Ri tp* <

CAPM NPV

-P*

Asset Pricing

P=Ri+tp

itp P

+ [ΔPt+1]E (1-tcg)

*

tcg

Asset Pricing

Inequality and Asset Prices

Inequality and Asset Prices

P(i+tp)-

R=E[ΔPt+1

](1-

tcg)

Asset Pricing