I listened to President Biden’s farewell address last night. I think he should be allowed his moment in the sun so I won’t fisk it.
I did want to remark on his warning about the growing power of an oligarchy in the U. S. It isn’t a new phenomenon. The Founding Fathers were a bunch of rich guys. There were exceptions, of course. Sam Adams was not rich but by and large they were rich.
What is different about the new oligarchy is how dependent they are on the federal government. In effect, most are creatures of the government in one way or another. Some depend on expansive intellectual property law. For some it is within Congress’s power to wipe out the business model on which their wealth depends overnight. Some became wealthy as a consequence of the tax reforms of the early Clinton presidency. For some a financial transaction tax (FTT) would greatly curtail their incomes. Some depend on direct government subsidies of the products made by their companies.
The irony, of course, is that although he may not realize it Joe Biden’s fingerprints are all over this growth in wealth. As senator he voted for many of the laws that resulted in the growth in wealth of the ultra-wealthy. As president some of his
In the 18th century the wealthy largely derived their wealth from physical assets. Today much of the wealth of the ultra-wealthy is derived from financial assets.
Consider the graph at the top of the page. As should be clear over the last nearly 20 years any relationship between stock prices and corporate earnings has become a thing of the past. Stock prices are now in a world completely distinct from the real economy. Over the last five years a major contributing factor to skyrocketing stock prices has been inflation and inflation has been the foreseeable outcome of extending credit to ourselves to pay for additional spending rather than paying for the additional spending via taxation and one of the side effects of that process has been causing the prices of financial assets and, consequently, the wealth of those whose wealth depends on financial asset to rise.
A few random observations.
The chart doesn’t really show a disconnect corporate earnings and stock prices — the PE ratio is roughly in the range since 1998, and only 2 years ago, in the range since 1890! The values of the S&P 500 should be log-scaled instead of linear scale. What the charts show more than anything is the substantial portion of stock prices increases is the exponential cumulative effect of the Fed expanding the monetary base.
Second, isn’t Biden’s warning literally the opposite of what occurred during the election? It was the poor (< 50K) who voted more republican, while voters earning over $100K shifted towards the Democrats.
What was noticed was who among the "rich" shifted to the Republican party, headlined by Musk, but Musk supported Democrats until 2021. There was Marc Andreessen, but he too was a Democrat recently. Indeed even Trump was a Democrat until 2009.
Republicans are definitely changing, traditional Republicans bankrollers like Koch, Romney are on the outs.
We’ve seen the S&P curve before. It’s the income trend for the upper class.
Gary Stevenson (London stock trader) makes the point that the rich cannot spend all their income on consumer goods. They have to use a large fraction of their income to buy assets, like real estate, stocks and bonds. That drive up asset prices.
But also, he points out that the investments of the rich divert spending from consumer goods, depressing their prices, and reducing the incomes of people who make consumer goods, which is mainly the middle and working classes. And, of course, that is exactly what we are seeing in the trends for the middle class (incomes stagnating) and working class (incomes declining).
Stevenson believes that unless the trend of rising incomes for the rich is stopped, Britain faces Dickensian levels of grinding poverty for the great majority of Brits. Current trends support him. His solution is confiscatory progressive income taxes that effectively cap income at some level considerably below present day rich incomes.
One might observe that the Dickens era in Britain was also the heyday of British imperialism, and hundreds of thousands of Brits emigrated to the colonies to escape the poverty of England. My own grandparent fled in 2010/11. See A. J. P. Taylor’s history of WW I. At the height of the war, during strict rationing, working class Brits had more food, clothing and coal (for heating) than they did before the war. (Taylor also has a history of WW II, that got him fired and ostracized.)
The same process of impoverishment of the working and middle classes is happening here, too. The post WW II era that saw very large rises in working class income has ended, and we, also, might be headed to the grinding poverty of the 19th Century. 1965 was peak America for workers.
For an introduction to Stevenson, see,
https://www.youtube.com/watch?v=oLsV8eD-DfM
PS. Is Trump’s raw imperialism (Canada, Greenland, Panama, Mexico) an unconscious response to the coming era of destitution?