Opinion: Has the next bubble arrived?
By Robert J. Samuelson Robert J. Samuelson Columnist focusing on economics Bio Columnist March 27 at 11:02 AM There are still some economists who fear another crash. The latest is Eugene Steuerle of the Urban Institute, a liberal think tank in Washington. In a new article, he warns that the economy may be on the edge of a giant “wealth bubble” that will collapse with possibly dire consequences.
To test his theory, Steuerle compared U.S. household net worth to the economy’s annual output, gross domestic product . Since 1950, the ratio has mostly remained 4-to-1 or less. Americans’ assets, from homes to stocks, grew roughly in tandem with the overall economy. With hindsight, we know that the second answer is correct, because in each case, the economy soon entered a recession that reduced the ratios. What worries Steuerle is that the same pattern is now unfolding. Toward the end of 2018, the ratio hit an all-time high of 5.3-to-1.
Of course, this is not a certainty; if it were, the declines would already have occurred. One alternate explanation for the unfamiliar spending behavior is that Americans increasingly tie their consumption spending to changes in their wealth — if the stocks go up, people feel richer and spend a bit more. This could both stabilize and accelerate economic growth.
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