Then, Greenspan worried that spending was dangerously strong, so overheated that it could touch off a bout of inflation as cash-rich consumers overwhelmed the ability of businesses to produce enough goods to satisfy them. Policymakers got what they wanted, and more. Most economists say no. There are plenty of wealth-effect anecdotes, but economists have been unable to measure its precise behavior, either going up or coming down. For instance, the markets have been sliding since March, but only now is consumer spending beginning to slow dramatically.
Some analysts say that's because there's a lag between a market plunge and a spending response.
Ken Mayland of ClearView Economics also notes that until this fall, stocks were generally still ahead of where they were a year ago. Similarly, economists can't precisely measure the impact of the wealth effect. Greenspan and others have estimated that for every dollar of added wealth, consumers spent 3 cents to 4 cents, but the estimates go as high as 7 cents, and no one knows for sure. Consider Fred McDowell, who recently retired from the Georgia Department of Transportation. We're going to postpone that for a little while.