Earlier this week, the Dow Jones Industrial Average hit twenty-thousand points — the first time the famed stock market index has reached that level since its inception in 1896. The twenty-thousand-point landmark is arbitrary and meaningless, but it does provide an occasion to reflect upon who owns the stock market and thus who benefits when it performs well.
According to the 2013 Survey of Consumer Finances, equity ownership — stocks held through direct ownership, mutual funds, IRAs, 401(k)s, and other similar financial products — is heavily concentrated among a small fraction of American families. As the graph below shows, the families in the top 10 percent of the distribution of equity assets control 86.8 percent of all the equity.
Not surprisingly, equity ownership is also heavily concentrated among the most affluent, with the wealthiest 10 percent of families holding 80.4 percent of the equity and the next wealthiest 10 percent owning 11.1 percent of it.
Equity ownership across the income distribution exhibits a similar pattern. The richest 10 percent of families own 68.4 percent of the equity, and the next richest 10 percent hold 12.5 percent of it.
Of course, families are not the only ones who own stocks. Foundations, endowments, and pension funds also typically invest in the stock market, at least in part. But the benefits that flow to these entities from a run-up in stock value only trickle down to ordinary people in certain idiosyncratic cases, such as when a defined-benefit pension fund might otherwise become distressed or insolvent.
The fact is, the vast majority of the stock market is held by a small fraction of the richest and wealthiest people in the country, and that is who benefits when it booms.
Basic economics teaches us not to dwell so much on this kind of inequality, because the stock market is used to raise funds for important capital investment. But, as Doug Henwood and others have shown, the stock market doesn’t actually operate this way. When companies need money to expand production and investment, they usually look first to their own retained profits, second to banks for loans, third to the corporate bond market, and then, only in relatively rare cases, to the stock market.
In the real world, the stock market exists mostly to provide an outlet for early investors to cash out and for those with lots of money to speculate on stock price movements.
So while Wall Street may be cheering the Dow Jones’s upward climb, workers have very little to celebrate.