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Best business commentary
February 11, 2008
Rethinking the U.S. prosperity gap
The gap “between the haves and have-nots” is narrower than we think, say W. Michael Cox and Richard Alm in The New York Times. It is true that “the share of national income” going to the rich has increased while the poor “saw their piece of the pie fall,” but “household consumption” is a “far more direct measure of American families’ economic status.” The income gap between the top fifth and bottom fifth is “15 to 1,” but the consumption gap is only “4 to 1.” And consumption is a better measure of “prosperity” now because most of us can now afford TVs, cars, and other “conveniences” once reserved for the rich. “Simply put, the poor are less poor.”
Home equity vs. equities
“Your house isn’t a stock,” says Jonathan Clements in The Wall Street Journal, but many people confuse their investments in real estate and equities. No wonder so many homeowners “are in such trouble today.” First, you “don’t really know what your house is worth until a buyer makes an offer,” while you can get “continuous price updates” on your stocks. That’s a problem if your “happy imagination” about your house’s worth leads you to insist on a higher-than-market price. Plus, if your house were a stock, it would have “an exorbitant expense ratio,” a “hefty” sales commission, and with your mortgage, you’d be buying on margin—with no margin call.
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