The NYT article notes the upper 5% income class accounts for 30% of consumption and recently reflected a negative savings rate at the same time the middle class saved more.

So the paradox of thrift appears inconsistent among the rich, who may spend more-save more, spend less-save less, spend more-save less or spend less-save more, depending on how wealth stock is regarded to current income flow.

Specifically, as Baker points out, if the wealthy were hit disproportionately in lost housing wealth, but still own sharply disproportionate wealth as well, the question arises what would the bust and attempts at recovery look like had wealth been more evenly distributed at the outset.

It's probably a safe bet to assume the recovery would be stronger because less consumption would be controlled by the upper 5% and the marginal propensity to consume from more wealth held by others (at less absolute wealth per capita) would be higher. In other words, the additional wealth would be expected to offset the paradox of thrift to save more from current income, and they would consume more.

A meaningful way to look at the data is that the top 5 % hold > 80 % of the wealth but contribute only 30 % of consumption. A ratio of consumption/wealth of 3/8 or 0.375.

The bottom 95 % hold 20 % of the wealth but account for 70 % of consumption. A consumption/wealth ratio of 7/2 or 2.5.

Play with the numbers as you like, the message remains the same. America is suffering from the effects of crushing concentration of wealth. One component of the cure, and the least painful, is to reverse the upward redistribution of wealth provided by Bush tax cuts and allow them to expire.

7/2 = 3.5

I was ticked by the NYT definition of rich, which was either $210,000 or $90,000. (The article used both figures in the article and then talked about "the rich" and "the affluent" without further definition.) $90,000 is a nice household income. I'd like to have it. But it won't buy an apartment in Manhattan or a house in the Hamptons. The Times managed to blur the upper middle class in with the seriously rich, who make millions, tens of millions or hundreds of millions a year and are still, per the Times, buying housing in Manhattan and the Hamptons. A household making $100,000-$200,000, which is 2 to 4 times the median income, is in a far different situation than the real rich and far more vulnerable. Professional people, middle managers and small business owners can lose everything in a poor economy. Wall Street bankers are protected, as we have seen. I am not sure what the article tells us, since its demographics are so unclear.

The MSM always has a very fluid definition of "the rich", "the wealthy", and "the middle class", depending on what point the article is trying to make. What should be most interesting is that once your income is $90K, you're in the richest 20% of the population. With that income a family will be comfortable, but the loss of a job, stock wealth or housing wealth will eventually be in the same position as a family making the median income suffering the same losses. So it doesn't surprise me that that family would be looking 'round and cutting back.

One thing to keep in mind is that inflation is a good way to build housing wealth - inflation redistributes wealth from creditors to debtors. Is this one of the reasons that that there is such a magnified fear of inflation at present? Of course it also has to be kept in mind who the creditors are, which currently can be a complicated question.

Is this "housing wealth effect" real -- or only for rich people? Seriously, I'd trust your take on this.

Most people think a house is something you live in -- very convenient. They don't think of it as an investment (actually they think of the mortgage as rent to the bank) or wealth. Isn't the "housing wealth effect" confined to the top 10 percent at most?

The notion that this is a real concept for most people is the sort of thing that discredits economists for most people.

I noticed those flaws in the NYT article (do they really believe 'the rich are different?) and heard you admirably presenting that point and others on Tom Ashbrook's NPR show on Tuesday. thanks for fighting the good fight, against ignorance and propaganda!