Is there a Link Between Asset Bubbles and Income Disparity?

[Sphere]

This is a thesis I have been thinking about lately, but haven't convinced myself of yet:

In modern industrial economies, there is a meaningful causal link between income disparity and the development of asset bubbles.

Proposed Mechanism:

Spoiler Alert, click show to read: 

When a large amount of wealth becomes concentrated, more of that wealth of will go into the the broad category of investments i.e. the purchasing of profit generating assets such as financial assets (Bonds, CD's, Stocks, Securities) and physical assets (Property, Commodities, Precious metals etc.), instead of consumer products (food, boats, cars, appliances, clothes, electronics etc.)

This means substantially more funds in an economy are being used in a speculative nature, such that when a bubble starts to rise in any form of asset, it can draw to it a very large percentage of the total economic wealth. And indeed, this creates a positive feedback for those investing in the asset, as they are gaining more apparent wealth and thus have more funds to invest with (that is until the bubble bursts of course).

I am fairly sure I can prove the statements of the first paragraph with data, the second of course is my thesis

Historic Evidence

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-Now for this thesis to have any merit, it has to fit with the asset bubbles of the past, or at least in the modern industrial era. I am just going to focus on the US economy as it is what I know best.

First to summerize the income disparity in the US in the industrial era. It can be hard to choose one statistic that describes income disparity but here is a fairly good repressentation looking at the top ten percent of the population in terms of wealth and what percentage of income they had during the 20th century.

Post WWI era to present

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Clearly we can see sunstantial and growing income inequality in the "Gilded Age" of the 1920's which created a bubble in the stock market. And when we reach that same level of income inequality in the the 1990's we have another stock bubble known as the "Dot com bubble" which only slowed growth in the income gap temporarily so that by the mid 00's we have the housing bubble and the corresponding mortgage backed securities bubble.

And perhaps even more importantly, the periods before the burst of these three major bubbles show that the growth in income from capital gains (wealth generated from assets) of the top ten percent skyrockets, showing that they have a considerable amount invested in these assets.

Why I am not yet convinced.

Spoiler Alert, click show to read: 

Something that doesn't quite fit is the large role played in the 90's Dot com bubble and the 00's Housing Bubble played consumers throughout the economy of almost all incomes. Suggesting that bubble creation might be more linked to consumers deciding to jump into a market rather than speculation by large investors level speculation

Though I did find an older NY Times article on roughly the same topic article looking at

Spoiler Alert, click show to read: 

Thoughts and data from other countires are welcome

[Vizsla]

Or:
The short political cycle encourages governments to pursue inflationary economic policies because it makes them look good in the short term. This is what causes the bubbles. They know perfectly well that after the boom will come a bust but they also know that they will probably be out of power by then. Also it is possible to stave off the inevitable crash by borrowing lots of money and massively increasing government spending. Eventually this results in a very large crash, but voters are so economically illiterate that they don’t understand this, and usually another political party is in power to pick up the pieces and take the blame for cuts in public spending.
In this world view income disparity would be related to the bubble but not a direct causal issue.

[Thorn777]

Ive always been convinced this is very true, at least it greatly adds to the magnitude of bubbles. Recently Ive also heard this out of the mouths of many directly involved in the investment-business, saying that the creation of toxics(and also DotCom shenanigans by investment-banks like boosting companies that they knew had nothing substantial behind it) had allot to do with so much accumulated-capital already on the everyday physical-assets and therefore the markets being in a sense already stuffed and flat, that the large investment-banks on top of information and with all investment-expertise(thus the most likely profiting from speculation) came up with these new ways to place bets with the continual growing amounts of capital in a flat-market just waiting for investments and continue the lucrativity of speculation.

When considering this its outright bizarre that post-crisis policies are in effect only endorsing the wealth-disparity further.

[Sphere]

Or:
The short political cycle encourages governments to pursue inflationary economic policies because it makes them look good in the short term. This is what causes the bubbles. They know perfectly well that after the boom will come a bust but they also know that they will probably be out of power by then. Also it is possible to stave off the inevitable crash by borrowing lots of money and massively increasing government spending. Eventually this results in a very large crash, but voters are so economically illiterate that they don’t understand this, and usually another political party is in power to pick up the pieces and take the blame for cuts in public spending.
In this world view income disparity would be related to the bubble but not a direct causal issue.

Thats a great political rant, but what basis in reality does it have? There were no inflationary policies leading up to the 1929 crash and indeed inflation in that period was essentially flat and in fact turned negative at points. Likewise in the late 1990's inflation was kept in check in the targeted 1-3% range. In the latest bubble everyone agree's the fed had its rates too low but this resulting in an inflation rate of only 3-5%. And conversely in the periods of actual high inflation over 10% during the 1970's there weren't major asset bubbles. Obviously cheap money (low Fed rates) has the potential to increase the size of asset bubbles, especially in housing were GSE's used Fed rates to directly lower borrowing costs (something rather unique in the economy), but monetary policy seems to only have a really direct effect on the inflation/growth rates, and many even question have effective they are at doing that.

And as a side note, total government spending in the the US has actually decreased in past 2 years.