Many of us are in a love-hate relationship with the stock market. Some cannot invest at all because we do not have the money. Some have pension funds invested in the stock market through a pension plan from a government entity, a private employer, or a 401 K. Many families may even have a 529 account to save for their children’s post-secondary education. For some “playing” the stock market is as addictive as gambling and it is possible to lose a lot of money in the market. For those who have enough money, meaning that they can afford to lose money, there are brokers available with good track records and an investor can come up with her/his own system for buying and selling stocks and build a sizable portfolio to add to their hoard of riches.
If we are increasing our assets by keeping a balanced stock portfolio and paying attention to stock market data, the stock market is the best place to grow your money given that most normal bank instruments pay little or no interest. Perhaps if we see our funds growing, we don’t want to change anything about the stock market. However, the successes and failures of stocks on the exchange have an outsized effect on our government.
When the 2017 Tax Cuts and Jobs Bill passed, the expectation was that businesses would begin moving back to America, hiring American workers, manufacturing products in America, and shortening supply lines. In fact, since Donald Trump was President, and he never stops bragging about what his policies will do for America, we heard about the positive effects of those outrageous tax cuts ad nauseum. But the tax cuts did not work. Businesses bought back more of their own stock to reap bigger profits and found ways to continue to avoid paying taxes to the IRS. We later learned that in 2019 many millionaires paid zero dollars in taxes while people with far smaller incomes paid a disproportionate share. But the stock market loved the Tax Cuts and Jobs Act because stocks were moving, prices of stocks were rising, and dividends were also rising. Almost every day a new company went public. If it was a tech company results might be astronomically positive.
As the rich get richer they become more demanding about what government should and should not do. Money became speech in Citizens United v FEC and several related cases made dark money untraceable in election campaigns and unlimited in the amounts that could be donated if you knew your way around the system. It became clear that money had votes, not as in one dollar, one vote, but as in buying politicians or even political parties. This was always true, and any change is just a matter of scale. Because the stock market is such a fixture of Capitalism and because our entire economy is based on money – who has it, who doesn’t – we cannot imagine the American or indeed the world economy without it. It might be becoming a bad bargain though.
Through the stock market the wealthy can exercise control over government. The slightest hint of inflation, for example, can send the market tumbling, destroying many a pension annuity for a year or more, even if the economy is doing well. Those who “play” the market can even hide the fact that they are doing a very risky thing, like bundling bad debt in with good debt in the form of mortgages, until suddenly we are in a Great Recession, caused during a Republican administration, but coming under the purlieu of a Democratic President, giving citizens the false impression that Democrats raise the deficit while Republicans don’t. Does the stock market run the government or does the government manipulate the stock market or both?
Economies don’t stay stable; they have cycles. Capitalists try to engineer the cycles of the economy, as our Fed does in raising and lowering interest rates; as wealthy investors do by espousing conservative values that harp on the idea of having a budget that always is balanced, by avoiding debt and deficit, And yet, if you Google it, conservative administrations have tended to raise the debt and the deficit while Democrats, constantly harassed by conservatives in the media, have often lowered the debt and the deficit at the expense of policies they wanted to pursue.
Is the stock market too corrupt to function in favor of the businesses that rely on it? Are wealthy people simply trading money back and forth while a few in the middle class with “mad” skills make some profits around the fringes? Is our government too beholden to what is happening in the stock market to stay independent? Are citizens at the bottom of the wealth heap fooling themselves that their votes count at all? Will the stock market refuse to allow us to transition to net zero carbon emissions? Can everyone be rich or does a society have to have an economic spread of social classes? Will analog money disappear, and will economies become totally digital? Are bitcoins the future of money, is cryptocurrency? Will we all have to figure out what blockchain means?
Capitalism predates the stock market but not by much. The Stock Market began, as the story goes, around 1602 with the Dutch trading company known as the Dutch East India Company. The Dutch sailed around the Cape of Good Hope at the southernmost tip of Africa and began trading with India, China, Japan, and all of Asia. They brought home silks and brocades, exotic birds in cages, monkeys, gold jewelry, spices, coffee, and opium. Others brought these goods along the Silk Road through China and Afghanistan into Eastern Europe and on into Western Europe and Great Britain. The Dutch allowed private citizens to buy shares in trade ventures – to take a risky stake in the successful outcome of the voyage of a ship with a full hold and, hopefully evading disaster at sea to come home with a hold full of impossibly unique and desirable goods. When there were many investors, profits were split, but so were losses. The Dutch market was a good one; there was no cheating. The rules were known and followed.
The early stock markets adapted quite easily to the Industrial Age which came along about one hundred and fifty years later and which is still a key mode for business in the 21st century. The Technology Age is upon is, overlapping the Industrial Age and we find that the stock market seems equally suited to the age of computers and AI and multiverses and whatever else our new mad scientists are cooking up. However, the stock market together with government policy that favors the wealthy has contributed to an out-of-kilter economy with too much wealth in the hands of too few, giving each billionaire and multi-millionaire more power in Washington than is good for our democracy and our economy.
Wealthy Americans are moving towards a view that dictatorships or an authoritarian government pair very well with capitalism, perhaps better than democracies even. Younger Americans who see that wealth is being hoarded and power is not up for grabs, see even middle-class comfort and stability fading away to scrambling for a living, gig economies, instability, and changes in what is valued in the workplace. They are contemplating revolution and real socialism, not the social safety net Republicans call socialism.
Young people are idealistic. They think that a governmental system can be bad or good, when it is only the humans who run it who make it bad or good. They don’t realize that the same dynamic will be at play in any system of government and that at least our founders tried to correct for the greed and selfishness of humans. All they see right now is that our republic is not functioning.
Do we the people in fact still have any choice about how things will play out in our democracy/republic? Is any attempt to weigh in already moot? Will the pandemic and climate change help level the playing field of the future? Would rebooting governments give us some years of respite from the power elites? These are not things we can know. The stock market probably knows. It operates almost as a sentient being. Can we keep the stock market and find ways to prevent profits from pooling in the pockets of those who are already wealthy? Does it still work to share the risks of doing business in a transitional age when the landscape changes frequently and the market responds to all changes, big and small? We are indeed in for a bumpy ride.
For the Nerds
“Gallup reports only modest differences in their party identification: 57 percent of the 1 percent identify as or lean Republican, compared to 44 percent of the 99 percent. There are virtually no differences in how they identify ideologically: 39 percent of the 1 percent identify as conservative, compared to 40 percent of the 99 percent…But the Gallup analysis may overstate the similarity of the two groups. A second study, authored by the political scientists Benjamin Page, Fay Lomax Cook, and Rachel Moskowitz and recently released by the Russell Sage Foundation, found that the politics of the very wealthy are strikingly different.”
“In several ways, however, the political behavior of the top 1 percent diverges more strongly from the 99 percent than Gallup’s analysis suggests.
- The 1 percent cares more about deficits than the economy.
- The 1 percent wants private-sector solutions, not government solutions.
- The 1 percent is vastly more politically active.”
Lots of excellent charts and graphs in this one
From The Journal of Politics, Jstor.org offers an academic paper, but it’ll cost you.