Economists ponder the wealth effect the way many of us ponder alien life. They're pretty sure it's out there--but they can't prove it, they don't know how big it is, and they haven't a clue if it's dangerous. All of which is creating a bit of a stir among the dismal-science lot as their famous and thought-to-be-flawless colleague, Alan Greenspan, relentlessly jacks up interest rates to wage an undeclared war on this vague creature.
The wealth effect, simply, is the penchant to spend more as net worth climbs. You probably don't lie awake at night fretting about the problems that increasing...
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