Rebello, Joseph. 2001. "The Richest 20 Percent of the Americans Did Most of the Spending Fueling Late '90s Boom." Wall Street Journal (5 May): p. BA 7. "The consumer-spending spree that fueled the U.S. economic boom of the late 1990s was nearly entirely the doing of the richest 20% of Americans." The study, published by the Federal Reserve this week, found "compelling" evidence of a direct link between consumer spending and the movement of stock prices. Fed Chairman Alan Greenspan, who proposed the study, has long believed in that link, but its validity has been questioned both inside and outside the central bank. The study could also cast doubt on the theory that rich people invest more when they acquire additional cash while poorer people simply spend more. U.S. Between 1992 and 2000, the study says, the net worth of all Americans grew faster than their incomes because of skyrocketing stock and property prices. The wealthiest 20% of Americans benefited the most: their net worth nearly doubled. But, far from saving more, those Americans spent prodigiously, reducing their savings rate by 10.6 percentage points to -2.1%. By contrast, poorer Americans generally increased their savings rate. The poorest 20%, for example, boosted their savings rate by 3.3 percentage points, more than any other group. "We show that the groups of families whose portfolios were boosted the most by the exceptional stock market performance over the latter half of the 1990s are the same groups whose net saving flows fell the sharpest from 1995 through 2000," according to the study, which was written by Fed economists Dean Maki and Michael Palumbo. The authors say their paper is the first to document the "dramatic behavioral response of wealthy Americans to the stock market," and to show that the response accounted for nearly all of the drop in the overall U.S. personal savings rate in the 1990s. Between 1992 and 2000, for example, overall U.S. savings fell by $200 billion. That is because the richest 20% of Americans reduced their overall savings by $240 billion while the remaining 80% increased savings by $40 billion. The savings rate of the richest Americans, the study said, implied that they increased their spending by an average of one percentage point for each of those eight years. -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
