The jobs-stock market connection.

• Position: A Symposium of Views

Imagine you were told two years ago that the US stock market would soon begin declining in value such that by late 2002 (a) more than six trillion dollars in wealth would have vanished; but (b) the unemployment rate would be not that far from where it was at the beginning of the process. Would you have been surprised, expecting the decline in stock market wealth to have had a greater effect on employment? To what extent is there today a disconnect between the market and job creation? Or are lag times simply much longer in today's economy where consumers enjoy the comfort of a strong housing market?

The complexity occurs because the richest 10 percent of household own a vastly disproportionate share of all equities.

Barton M. Biggs is a Managing Director of Morgan Stanley and Chief Global Strategist.

The only real danger to employment: A synchronized stock and real estate market collapse.

I don't believe there is a disconnect between the stock market and job creation, but the intensity of the hook up is overestimated. And lag times are much longer (and weaker, for that matter) in today's economy where house prices are rising 5-6 percent per year in real terms.

I have long been skeptical of simple analysis of the so-called "wealth effect" of the stock market on both consumer spending patterns and job creation. There is no question that the rise in the stock market in the second half of the 1990s caused Americans to feel richer and save less. However, the long-term relationship between the saving rate and net worth as a percent of disposable income suggests these trends take years to play out and are gradual, not cataclysmic, happenings. The saving rate tell gradually from 7-8 percent in the early 1990s until 2001, eventually touching zero, and consumer spending was clearly above its long-term, normalized trend.

A superficial analysis would suggest that the $6-trillion decline in the stock market in the past few years would devastate consumer spending because equities amount to 60 percent of the aggregate net worth of all households. Thus, many argued that inevitably consumer spending is another bubble waiting to be popped which will trigger a recession and rising unemployment. The complexity occurs because the richest 10 percent of households own a vastly disproportionate share of all equities. A much higher percentage of their net worth is in equities and an even higher percentage of their equity in private businesses. They are the big spenders on luxury goods but to what extent will they curtail spending because of a stock market decline? Are the likes of Bill Gates or Warren Buffet going to diminish their lifestyles because of the stock market decline? Obviously these two billionaires are a ridiculous example but perhaps it helps to prove the point.

By contrast, the middle 70 percent of households have 60 percent of their net worth in their home and only 12 percent in equities and 12 percent in pension accounts of which only half are defined contribution. Thus, the steady rise in residential real estate values has offset much of the vanishing wealth effect from the stock market collapse. Furthermore, declining long-term interest rates have triggered massive amounts of refinancing, about half of which has been used for consumption of one form or another.

My...