Blame the Stock Market for Income Inequality

From a Google Image Search – Wall Street Journal

Sometimes when you sit in the cheap seats, up in nosebleed territory, the world below seems far away and small. Although the individual actors may lose definition, the view offers compensations in terms of seeing overall patterns, movements and strategies. Watching the economy from the cheap seats is very different because all the action is above where all the rich folks are, and the cheap seats are below, sometimes far below. When doom befalls those in the pricey seats, the fallout reaches to the cheap seats, and although the impact is less, it makes already difficult lives tougher. But in the pricey seats there can be mayhem – some win – some lose – some topple back to the cheap seats. When those in the expensive seats, the box seats, win, the people in the cheap seats can watch the celebration but they are not invited to the after-party.

What my analogy says is that you don’t have to be an economics major to know about the ebb and flow of money in the world. And you don’t have to be an expert to draw some interesting conclusions. Listen to the news. Pundits quite often point out that people at lower income levels do not own stocks, but most economic decision-making must consider how bills, laws, regulations, taxes, all things economic (even tariffs) will affect the stock market. That means that the economic needs of folks who do not own stocks don’t matter much in decisions that affect the economy. Even so, the whole economy, top-to-bottom is affected by whatever economic measures are taken. The poor can get poorer, or there may be times when a flourishing economy at the top temporarily lightens economic stresses at the base.

Progressives blame Capitalism for the economic inequality that has become increasingly apparent both in American and globally. But if you listen from your cheap seat you eventually understand that a lot of the blame belongs with the stock market. Capitalism can and did exist without stocks or stock markets, but once the stock market turned investment into a game that anyone with money could play, it was as if Capitalism went on steroids. 

In order for the partnership to work, industry and business have to keep the investors happy with ever-bigger profits, rising stock values and higher dividends (if they are offered). This means that workers only get higher wages after owners and stock holders get paid. Since businesses get more investments when profits go to stock holders than when they go to workers guess who gets robbed?

When there were strong unions, workers could demand a share of the pie and then stop working (walkout, go on strike) if they were ignored. Conservatives have always opposed unions, but in the past decade they have managed to weaken unions by passing right-to-work laws which have stripped workers of much of the power they once had to act as a balance against the demands of stock holders. The market is doing well, worker incomes are not.

The profits that go to shareholders keep making those who have stocks and those who own businesses richer, and since money equals power, these particular citizens are able to exert a lot of pressure in Washington and can keep getting laws passed that favor those who are already wealthy. Lobbyists, PACS that fund elections, laws like the Supreme Court decision that gave free speech (and votes) to dollars (money equals speech, corporations are people) have expanded the power of wealthy Americans who own stock. And because those who cannot afford stocks know that everyone is hurt if the stock market tumbles they are afraid to oppose even the most outrageous legislation (like the Trump tax cuts) because they don’t know how their opposition will affect the overall economy and their own everyday lives.

The stock market becomes a rocket that delivers more and more money to those who already have it and turns workers into statistics in a global worker market where American salaries already seem too magnanimous. 

If it is the stock market that is responsible for a lot of the economic inequality that exists then do we do away with the stock market? Well, good luck with that. And although this conclusion was reached in the cheap seats, when the question was put to the “Google” it was clear that there are already expert articles which show that economists were ahead on this. It can take longer to draw valid conclusions about money when you have always been in the cheap seats. 

With income, the story is a familiar one of rising inequality. In 1989 and 2016, the poorest fifth had 3 percent of pre-tax family income. But the top fifth of families saw their share of income rise from 57 percent in 1989 to 64 percent in 2016. Put another way, the bottom group’s share remained miniscule, the top group’s share rose by 9 percentage points (or one-sixth), and middle America saw its share diminish.

For corporate equity, we find that the lowest-income fifth of families had 1.1 percent of corporate equity in 1989, and 2.0 percent in 2016 (over the same timespan, the second-bottom quintile share went from 3.5 percent to 1.6 percent, so the total share of corporate equity of the bottom 40 percent fell). By contrast, the highest-income quintile had 77 percent of corporate equity in 1989, and 89 percent of corporate equity in 2016. Hence, corporate equity is considerably more skewed than expenditure or income, and has become considerably more skewed over the past three decades.

Even if the shares had remained unchanged at their 1989 levels, excess market power would have exacerbated inequality, because stock holdings were considerably more skewed than consumption. But because consumption inequality remained little changed, while inequality in stock holdings worsened, the effect of market power on inequality was even more substantial in 2016 than a generation earlier.”

https://www.sciencedirect.com/science/article/pii/S0304387817300858

https://digitalcommons.iwu.edu/uer/vol15/iss1/7/

A solution I like better than trying to close the stock market (which would be even harder than passing sensible gun laws) is for everyone to “inherit” some stocks when they turn 18, or 25, or, even better, at birth – and not risky stock, good solid stock, in accounts they cannot cash in until a real need arises (college, training, buying a house, starting a business) that also will serve as an investment. Medical emergencies would be handled in another way. Then everyone would have a reason to follow the market, to wish the economy well, to learn about investing and to experience an opportunity to have an economic goal and to reach that goal. This would also go far to lessen economic inequality, and reparations could be managed by giving those who have been held back by racial discrimination a larger share in the market.

You can start laughing now – but it could work and it would be so much more peaceful than a revolution.

From a Google Image Search – Giphy.gif

Examining Republican Myths

Republican economic myth 3 big

The Economy

Why are we still hearing the whine of Republicans like gnats buzzing our brains by way of our ears, saying things like they do not dare let Democrats get their hands on the economy and that they might be able to cast an extremely reluctant vote for Hillary if she moderates her agenda for the economy? I seem to recall that the Republicans were in office when this country went into the Great American Recession in 2008. I keep thinking (don’t you) that it was lack of regulation on banks and investment firms that created a housing bubble which was destined to burst and do real damage to millions of Americans. I have, with many other middle class Americans, waited for some of that “trickle down” to get into my bank account but that hasn’t happened. We have examined these Republicans myths many times.

So, my question is, why do Republicans still think that they should be put in charge of the American economy? Why do they think that the same policies that tanked the American economy are what we need to set it right? These are the same Republicans who obstructed the Obama administration so much that he was never really allowed to stimulate the economy as much as he would have liked and who then want to use the slow recovery meme against the Democrats in the 2016 election. I guess they think we have very short memories, or that they are so popular (or that their media brainwashing has been so effective) that the truth does not matter.

Thomas Friedman, who leans right, wrote about this in yesterday’s New York Times. He cites Hillary Clinton’s progressive agenda as being anti-business and he suggests that her policies will discourage, rather than encourage investment and innovation. Although Hillary may not have been addressing business interests lately, she knows that this country’s engine of growth is business, employment and a spirit of invention that keeps us striving to break new ground. He makes it sound as if she will replace industry with infrastructure, private with public, but she is not advocating any such dichotomy. She is saying that improvements in infrastructure will boost employment, but will also push economic growth and make it easier and less expensive to do business in America.

Republican myth 3 big

Foreign Affairs

I also keep hearing a chorus, sort of like the chorus in a Greek tragedy, softly chanting a refrain that tells us the heroic tale of the mighty Republicans who are much better at foreign affairs and winning battles than those dumb Democrats who seem to think that we can rely on diplomacy, alliances, and hit and run soldiering. In this version of the Republican myths they blame the Democrats, especially Hillary, for the chaos in Libya and they tell us that Obama and Hillary are to blame for the upheavals in the entire Middle East as if we have already forgotten who took the lid off the pot in Iraq (43). As if the internet played no part in the events of the turn of this century.

They are caught in a narrative that suggests that complex world events have simple causes. According to Republicans people can’t cause climate change, but one person, acting on his/her own can topple empires and create global political chaos with well-intentioned but clumsy advice. Yes Obama backed off from the “red line” in Syria, but where would we be right now if he didn’t? I suppose in GOP-world we would be shut of Assad, the Syrian people would not be flooding Europe (so that their children can have some quality to their lives), and there would be no ISIS. But this is all hypothetical and we might just be stuck sending our sons and daughters into a situation that is still in flux and cannot be solved with powerful rifles and dead soldiers.

They insist that ISIS would not exist if Obama had never brought the troops home from Iraq and the rest of us insist that ISIS would not exist if Bush had never sent our troops to Iraq. By artificially speeding up an awakening that probably was inevitable but perhaps not quite so imminent chaos was loosed on the world in the sense of the conflicting sects of a religion that we once saw as monolithic but which was not, in the sense of how the Islamic religion, which has been left in a peaceful-seeming equilibrium will eventually either temper its fundamentalism with modern secularism or will wall itself off in an ecstasy of purity and either turn its back on the rest of us or force our foreheads to the floor. I think Bush would have done better by all of us if he had gone directly to Afghanistan and left Iraq alone, although the taunting of Saddam Hussein was hard to ignore. Once the Middle East awakened to the 21st century, some Muslims with disgust, some with interest, the changes we are experiencing there were probably inevitable.

The GOP shows no more prescience or military brilliance when faced with our current dilemmas than the Democrats and, in fact, because they do not like to approach the problems we face with any delicacy, their desire to stomp around using the dusty boots of America’s children, and their bombast would actually be harmful. Many people believe that Hillary Clinton is too hawkish to conduct our foreign affairs in these combustible times, but I like to think that Hillary is unlikely to turn Obama’s foreign policy approach aside and become an avenging Amazon. She has too much compassion for women and children to leave the effects of her decisions on them out of the equation.

The GOP, if you really consider the past seven or eight years and the mistakes of G. W., has nothing to offer us on either the American economy or our foreign policy, but Hillary will still take their stand on these issues into account because she wants to unify, rather than divide, America. The Republicans cannot be trusted to do the same if they are in control.