How will the rise in the wealth-to-income ratio end?
In OECD countries, the wealth -to- income ratio has risen very significantly. It is inconceivable for this trend to continue without end. But what mechanisms might stem the rise in the wealth-to-income ratio? First possibility: wealth effects increase and stimulate demand, driving up inflation and interest rates, which causes asset prices to fall; Second possibility: asset prices fall not because of a rise in interest rates, but because of an “endogenous” collapse of asset price bubbles , once they become so inflated that demand for assets fall s ; Third possibility: the growing transfer of wealth through inheritance and not through the sale of assets by old to young removes any limit to the rise in asset prices. A political reaction to rising wealth inequality could then stop the rise in the wealth-to-income ratio.