But what really subverted the wealth effect was the financial crisis and Great Recession. People better appreciate that houses and stocks are risky assets, says economist Paul Edelstein of IHS Global Insight. They’re more reluctant to borrow and spend against them, because today’s gains could become tomorrow’s losses. Americans became more defensive, he says. Jobs are scarce; incomes are sluggish. People are not just paying down debt; they’re building barriers against hazards they can’t foresee.

There has been a stunning shift in behavior, notes Zandi. In 2006, at the peak of the housing boom, almost 90 percent of homeowners who were refinancing mortgages increased the size of their loan, according to data from Freddie Mac; they were borrowing against higher housing values. In 2012, 83 percent of refinancing homeowners either didn’t change the mortgage amount or lowered it. They were striving to pay off debt.

So the wealth effect varies by time and circumstances. Now it is a casualty of the financial crisis and Great Recession. We have yet another example of risk aversion dominating the economy. People eager to borrow have faith in the future; people eager to repay debts worry about the future. We are prisoners of psychology, which can change but is hard to manipulate. That is the predicament for policy and politics.