Wall Street’s Success (probably short-lived) Is Strong Evidence of our Problems

How in the world can one explain the continuing resiliency of stock prices in the face of the pandemic and resulting economic devastation?  The only answer is that the vast majority of America’s investable wealth is in the hands of people who are impervious to the initial pains of this tragic event.

We have known for years that most of the rewards from our economic growth have gone to a small minority of our citizens.  Executive and professional salaries have outpaced blue-collar worker and service employee salaries by wide margins for the last 40 years. 

The top 1% of the wealthy in the US own over 50% of stock market equity; the top 10% more than 82%.  It is estimated that another 40% of the public has some small ownership, mostly through 401k plans, but the power is all wielded at the top.

Technology industries, which make up a large percentage of that growth, often have relatively few workers but bring in massive revenues that mostly benefit the super-rich who funded or built the companies, or the stockholders who see their share prices rise dramatically.  It doesn’t take much capital or long years of toil to build a software application or platform that becomes an overnight success through the magical ubiquity of Internet access and brings vast riches to a small coterie of investors and owners.

Fears of the economic effects of the pandemic caused an initial drop in the stock market in late March and April, but prices have been steadily gaining ground since that time despite the continuing gloom of virus surges and unemployment.

The rich and comfortable simply haven’t felt any pain yet.  Sequestered in their massive homes, protected from the ravages of the virus, the wealthy continue to perform their work remotely and occasionally complain about not being able to dine out or entertain themselves with exotic travel.  Their investment dollars have no place else to go, as interest rates are essentially zero, so their money simply moves around the stock market as necessary to minimize the impact on their bloated portfolios.

A reckoning will come at some point. The pandemic shutdowns triggered massive unemployment on the scale of the 2008 or 1929 recession/depression.  In recent weeks there has been a return of some workers, but there is still an unemployment level of over 10% in the U.S.   Moreover, the entire world is in economic shock, which will certainly lead to more economic fallout in the months ahead.  The economic stimuli that staunched the hemorrhage in the first few months will soon fade away.  Does anyone really believe that a more dramatic decline of GDP and general global economic output with consequent rising unemployment does not lie ahead?

And recent coronavirus surges have demonstrated that there will be no ‘returning to normal’ until a vaccine and/or effective treatment is developed.  What will be the economic impact of another 6-12 months of partial shutdown?  It seems certain that even the wealthy will have to acknowledge the dire situation we are in.  At some point the selling will begin again and it will be much bloodier than the first round.

When the money runs out for those whose livelihood has disappeared in the pandemic, things may get very ugly.  Governments will be overwhelmed with debt trying to shore up social safety nets and unemployment benefits.   The only sensible recourse will be to require the rich, the foundations, the endowments and the mega-corporations to part with some of their plunder to keep the world from completely unraveling.  The world can certainly benefit from having a few less billionaires.  Let’s pray there is the will to make it happen.