David: In order to understand quantitative easing you have to understand what a bubble is. Basically, a bubble happens when the value of assets—that’s stocks or houses or something—just starts going up so much that people feel like they’re wealthier. They haven’t actually gotten any more income, but the assets they own are worth more and more. Say you have a house and it triples in value and so you think of yourself—your net worth—as being a lot higher, so you go out and spend more money. That’s called the wealth effect. Have you heard of that?
Joni kicks her shoe so that it skims right past David’s ankle and lands beneath the blackboard where he’s standing.
David turns to look at her. Their eyes meet briefly before each turns away, Joni’s face flushing. She bites her bottom lip.
They are in an empty classroom at Columbia, where David is a graduate student, a transplant from South Africa.
David: So the wealth effect is the fact that when the value of your assets rises you spend more of your income. You save less money because you feel like your house is doing the saving for you. So, asset bubbles, wealth effect. What happened in these recent bubbles was based in housing. A really high percentage of GDP growth in the 2000s was from people borrowing against the value of their homes, taking out loans on their homes and spending the money. Like if you bought.…
David continues, but Joni does not hear. His voice is a sound that pleases her, that enters her and leaves her just the same.
She had genuinely wanted to learn when she asked David to tutor her—paid him $100 for his time and companionship—but she finds herself unable to follow. Impressive-sounding, incomprehensible words flow in and out of her ears, as if she were listening to a lecture in French. She focuses on the things she likes, sensual things: the sound of his accent, the tap of the chalk as he writes, the silhouette of his tall, slender body, the air of authority that being at the front of a classroom gives him.
And she likes the feeling of breaking a rule, of sneaking into an empty school she isn’t even enrolled in after midnight, the sense of camaraderie she felt gliding through the large empty hallways in the dark with David. Perhaps it is the air of the illicit that makes her unable to focus on economics.