> In defending the Fed’s bond-purchasing plan late last year, Bernanke said that “higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion” (2011)
This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate this additional action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending.
Wolf says:
> …which would lead those holding stocks to feel wealthier and more confident, and then they’d spend a little more, and some droplets of this might trickle down to the people that are working in the real economy
This is distinctly different than what Bernanke says in that quote. Bernanke is saying that the mere economic indicator of higher stock prices boosts consumer confidence, like when someone sees a lower gas price and feels better about the economy.
I have to agree with Bernanke there. The layperson sees a number on the news that says “economy good” and they worry less about losing their job or spending too much.
Richter misunderstands the wealth effect to be the literal spending of money by people who own assets like stocks and the trickling down of that money.
Even if the wealth effect benefits the wealthy more, trickle down economics is not the same concept.