Inequality was huge before coronavirus. The stock market is making it worse
S E E D E D C O N T E N T
London (CNN Business)The gap between the world's rich and poor is expected to grow due to the pandemic, and a stock market high on government and central bank cash bears much of the blame.
Research shows that stock ownership is highly concentrated among the rich, with the wealthiest 10% of US households owning 84% of all stocks in 2016, the most recent year for which the Federal Reserve has released data. That means the S&P 500(INX) index's massive gains over the past 12 weeks are likely to have disproportionately benefited the haves over the have-nots, exacerbating inequality as Main Street reels from a brutal economic shock that's triggered the worst unemployment crisis since World War II. The index dropped sharply last Thursday as investors reevaluated risks to the outlook, but it's still up nearly 40% since its low on March 23. "A rising stock market, especially at a time of high unemployment and stagnant labor incomes, will disproportionately benefit richer households," said Eswar Prasad, an economist at Cornell University. US stock prices have increased thanks to unprecedented support from the Federal Reserve, trillions in government stimulus and optimism over a quick economic recovery, and there's some evidence that smaller investors have driven the rally. Even so, the Americans that have been hurt the most by the pandemic are unlikely to benefit directly from the recent snap back. That disconnect could feed social unrest, as socioeconomic and racial divides become even more pronounced.
How stocks feed inequality
In 2019, the richest 1% owned 45% of the world's wealth, according to a report from Credit Suisse. Stock ownership was an important factor. After the dot-com crash in the early 2000s, middle class families exited the stock market, according to Edward Wolff, a professor at New York University who focuses on wealth disparity and analyzed the 2016 Fed data. Facing ongoing financial pressure, many never returned, while the wealthy held onto their shares. "Median family income hasn't really budged for 20 years," Wolff said. "There's a lot of financial stress on the middle class so they haven't really expanded their stock holdings." In the United States, the disparity also plays out along demographic lines, according to a 2017 report from the Federal Reserve. More than 60% of white families own stocks, either directly or through a retirement account, compared with around 30% of black and Hispanic families. Stocks aren't the only way to grow wealth. But higher-income households tend to save more, giving them greater opportunities to invest. These households can then leverage their returns on assets like stocks to keep growing their portfolios, according to the Fed.
This creates a "feedback effect" that helps the rich keep expanding their holdings. Households with a net worth above $500,000 now have almost 16 times the stock and mutual fund holdings of households worth between $50,000 and $100,000, according to an analysis from the Securities Industry and Financial Markets Association in October. These households on the upper end of the spectrum have nearly 80 times the stock and mutual fund holdings of households worth between $25,000 and $50,000. Stock market gains have poweredthe cycle. Whilemiddle-class incomes have remained stagnant, the value of stocks has skyrocketed, helped by easy money from central banks like the Fed and a glut of shareholder rewards. The S&P 500 has increased by 172% since 2002, while the Nasdaq has shot up more than 400%. One reason: Between 2008 and March 2020, companies have spent nearly $7.1 trillionon share buybacks that have boosted stock prices, according to Birinyi Associates.A big corporate tax cut by the Trump administration in 2017 was spent by many companies buying back their own shares. Proponents argue that buybacksand dividends trickle down to regular workers, since stockholders can reinvest higher earnings in the real economy, while critics think that money should go to longer-term workforce investments, such as higher wages and retraining employees.
The coronavirus effect
After plunging in March, stocks have gained at a record clip as central banks pledged trillions of dollars in an unprecedented intervention to prop up markets and the economy. That's helped those who are most likely to own stocks. Between March 18 and last Thursday, US billionaire wealth increased by $637 billion, an increase of more than 21%, according to a report from the Institute for Policy Studies, a progressive think tank. Meanwhile, the economic outlook appears dim. Tens of millions of workers around the world remain unemployed during the worst downturn since the Great Depression, and the most vulnerable communities — including women and black and Hispanic Americans — have been hit the hardest. "Those least able to withstand the downturn have been affected most," Federal Reserve Chair Jerome Powell told the Senate Banking Committee on Tuesday. "If not contained and reversed, the downturn could further widen gaps in economic well-being that the long expansion had made some progress in closing." Federal Reserve Chair Jerome Powell testifies before the Senate Banking Committee on Tuesday. Many people who have lost their jobs since March are unlikely to have participated in the S&P 500's dramatic rally. Overall, only 55% of Americans own stock, according to the most recent poll by Gallup. "Households that are getting hardest hit during this recession, particularly those with low-paid and low-skilled workers, tend to have small or nonexistent buffers of savings, which means they receive few benefits from resurgent stock prices," Prasad said. Plus, some companies have opted to maintain their dividends while laying off workers. BP(BP), for example, is giving investors their payout for the first quarter but announced last week that it would cut 10,000 jobs by the end of this year.
The consequence, though, is that inequality drummed up by the stock market over the past two decades won't improve through this crisis. It's only expected to get worse, which could contribute to the widespread anger and discontent that's helped fuel the Black Lives Matter protests. "While there is nothing wrong with traders and investors profiting from timely and smart speculative activity, the growing disconnect between the economy and equity markets is going to cause increased social tensions," said Joseph Brusuelas, chief economist at the auditing firmRSM.
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The 600 dollar per week coronavirus bonus paid to those on unemployment benefits will end in mid July. Some think subsequent hardship could lead to social unrest if unemployment stays high through the rest of the year.
I hope they take out their frustration at the voting booth.
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40% of those who lost their jobs due to the coronavirus effect on businesses are people who were making 40,000 dollars a year or less. Such people generally have no savings to fall back on.
As long as we operate as a capitalistic society, there will be income disparity.
So what?
Not every job SHOULD pay the same.
And what people choose to do with their own money after they get it is up to them. Some aren't very savvy when it comes to finances. Some like to spend more than they make. Some want to max out their credit cards. Some would rather spend $1200+ for a phone than bank it or invest it.
Or buy $1000 stereo systems and wheels for cars worth $1500 at best.
No one is saying every job should pay the same.
10% of the population owns 84% of stocks. So basically the stock market benefits 10% of the population. Why should the 90% give a fuck if the rising stock market makes Trump happy?
America cannot go on much longer like this. There will be serious unrest in the streets. Not this piddling shit we have been seeing over the past few weeks.
Basically, the stock market generally benefits all who own stocks. Some people choose not to invest. Plenty of regular people own stocks as a part of their retirement accounts. You know---the 90% of the owners of the stocks.
Trump doesn't have a fucking thing to do with it except in your mind.
Wait a minute--did you think the ownership of stocks differed greatly under a Democratic President? LMAO!
Sure America can, and more importantly, will. So a few people are upset. They may get over it in time, or not. No big deal either way. And I fully support anyone exercising their Constitutional rights in a peaceful manner. Not so for yahoos who riot, loot, and burn.
Yep, Wall St. decoupled from Main St. a long time ago. But they provide bread and circuses for the plebeians so it's all good.
I'm glad we all have the choice to invest or trade in the market. That's why I'm up at 4am checking futures and what the Asian markets did overnight. It makes no difference to me if Steve Jobs widow owns a million times more Apple stock than I do.
We should be about the common good, not the Dean (individual) good. Stock market profits should be paid only after the workers for a company are paid a living wage. As it is now stock market profits are gained at the expense of workers wages.
Ok, can you please name some large companies that are traded on the exchange that don't pay a living wage?
And what do you consider a living wage?
why does Walmart need subsidized by US taxpayers. Y can't they pay employees enough so as they don't need government help ?
Why can't they employ their employees with enough hours so as they are covered by health insurance, provided by Walmart ?
so you're all for subsidizing the Walton Family ...?
We are not our brother's keepers...the world, society, and reality doesn't work that way
Please list all the subsidies Wal Mart receives from the federal government.
How many Wal Mart employees receive government benefits?
Why don't some of the folks always whining about Wal Mart open their own stores, and pay whatever they determine is a "fair" wage?
Or is it just easier to whine about someone else's success?
BTW, since you didn't answer anything I asked, what do you consider a "fair" or "living" wage?
Got a list of subsidies the Wal Mart family receives?
Any Walmart workers who receive government aid to the working poor such as food stamps or subsidized housing are an example of Walmart receiving government subsidies. The government pays the workers what the employer won't.
are you claiming Walmart employees' don't receive BILLIONS because they do not earn enough, while the heirs make tens of billions each year...?
No, Wal Mart doesn't receive those benefits. Not the same thing that was claimed.
How many Wal Mart workers receive benefits?
What percentage of them receive benefits?
The Waltons Family: 100 Million Dollar Income Per Day
IF you can provide an example of me doing so, PROVE it. Otherwise, it is a stupid question.
What business is it of yours what others make?
wanna parse words TEX ?
Ok, can you please name some large companies that are traded on the exchange that don't pay a living wage?
I gave you Walmart , but asz usual, you wish to move goal posts, too bad.
Well, parse this:
WHAT is a "living" wage? Who determines it? Is it determined by geographical location?
Why don't you open your own store, and then pay your employees the wages and benefits that you want others to pay?
Just. Stop. The. Nonsense. About. Moving. Goal. Posts.
No one did any such thing.
Why won't you tell us what you have determined a living wage to be?
It's not my problem that you don't understand why government benefits to the working poor act as subsidies to their employers.
One that won't KILL U
I spent much of my career between the top 40-45% and am now due to job change in the bottom 50%. So, I’m not at all rich. On the other hand, my ability to pay off my house, have a comfortable retirement, preserve kids education funds as well as my health savings and rainy day fund are solely dependent upon the wellbeing of corporate America and the stock market. My economic future is tied to that market. I’m one of the 90% that owns the 16% above and I’ve been invested through my former employers pension and 403b plan and now my current employer for over 33 years and on my own for 25. So as a non rich person it irks my last nerve to see progressives complaining about the stock market when men and so many in the middle and industrialized working class have our economic future dependent upon it
And it isn't my problem that government has decided to subsidize people willing to work part time. Or at low-paying jobs.
So tell us who has died because Wal Mart didn't pay what you think they should. Never saw a paycheck kill a person myself, Maybe you are unique in that regard.
another goal post mover..?
Exactly which heirs, or hell, combination of heirs, are making "tens of billions" each year.'
. So now you twisted your above statement to mean you actually wanted on;\ly their market valuation increases, and not their income... you guys are too funny
What the Waltons make or have won't kill you.
Too many on the progressive side are bitter that when the Dow to use the commonly referenced index dropped from 29,000+ to 18,000+ wiping out all of the Trump gains since the day after the 2016 election due to corona virus that it didn’t keep sliding into a total melt down. They fear that the market rebound might hand Trump re election and they’d be willing to see millions mired in poverty if that’s what it took to defeat Trump. Bill Maher openly stated that.
you've spun it enuff for both of US.
Congratulations to You and Tex
Oh, thank you so much!
Always good to know when the debate is over and I have won.
i 'll let you both know when, or if, that ever comes to fruition
According to data from the U.S. Census Bureau, only 32% of Americans are saving for retirement in a 401(k). Granted, that owes partly to the fact that 401(k)s are employer-dependent, and not every company offers one.
Does the Average American Have a 401(k )? | The Motley Fool
How many Americans don't have a retirement account?
According to the Aspen Institute, close to 6 in 10 working-age Americans do not have a retirement account. Sadly, the Aspen Institute also warns that things are likely to get worse due to the changing nature of work.
As more Americans freelance or become part of the gig economy, traditional workplace benefits such as access to a 401(k) will become less common. This will leave working-age Americans on their own to figure out how to save enough for retirement and take advantage of tax breaks that help them build a big nest egg more easily.
Today, less than 10 percent of Americans have access to a pension. Most however have access to 401k plans and other retirement options. Unfortunately as the middle class shrinks more Americans are finding it more difficult to save any money.
Social Security unfortunately is going to become the default retirement plan for many.
So then , we should be increasing Social Security benefits, correct?
because people refuse to plan for their own retirement?
You really want wealthy people to get more in benefits?
Hmmmm.
About half of American workers simply cannot afford to save much money for retirement. They need all their money to live a "decent" lifestyle today. About half of individual Americans make less than 40,000 dollars a year. Rent or mortgage will easily take a quarter of that, or more, then there is groceries, transportation, health insurance, out of pocket medical expenses, clothing , home maintenance, child expenses, and a little to booze it up on the weekends. Half the country has zero money for the stock market.
it would be very easy to prevent "wealthy" people from getting more social security. all you need is politicians willing to do it.
Americans have always lived a keep up with the Joneses lifestyle. No one needs the latest i phone, including those who can afford it. No one needs anything but something to eat and a roof over their heads (when it rains. ) Advertising works, and people will always be influenced to buy, whether it means no retirement savings or not.
None of this is the issue. The issue is why do we have an economic system where 1% of the people have 50% of the wealth of the society?
Yeah, but I prefer to take care of myself, not depending on others to provide for me and my family. I have always thought it was my job to take care of me and mine. I won't be begging someone to provide for me.
This is so very true. A prime example of this is an IT worker that I hired a few years ago because of his experience as a trainer for Oracle software. Due to his experience I hired him in at a good rate for an IT worker here in Phoenix. But he had developed a hobby of collecting pins from Hard Rock Cafe's, even traveled around the world to pick up pins. He bragged about a trip to South America where he flew in, took a taxi to the Hard Rock there to get the pin, same taxi back to the air port to fly back to Arizona. And he has stated he will be working until 70 as he needs to maximize his SS payments to survive as he has no real retirement savings.
On the other hand, I will be retired at 65 (due to the cost of health insurance, I decided to wait until I was eligible for Medicare) with no money worries as I have built up a very nice nest egg that will easily provide for all my needs (and most of my wants). My first retirement account was started when I was 24. Yes, I know I started late in life.
sry, guess I didn't include that he's 67 now. he has to go to the 70 to hit the maximum SS benefit due to his spending all his money on travel to collect those pins.
As far as myself, already planned on waiting until at least the full SS benefit age of 67 before I start to withdraw. Might even wait until I hit the max amount but my family history and medical history don't make for great odds that I'm gonna hit my 90's so I may start to draw at 67. But I'm set for money, it's health insurance that I am waiting for.
It's funny how conservatives do not at all address what is clearly laid out in the article.
They either talk about themselves , or they belittle those who are not getting rich from the stock boom as "losers" or whatever.
When a society has an economic system geared to the enrichment of a small slice of the population , inevitably at the expense of everyone else, it is sowing the seeds for civil unrest.
We should start with a tax on stock market transactions, and use the money collected for social programs that benefit everyone.
We don't want socialism or communism JR
It's never worked out for the common good anywhere that it has been tried.
Even in those systems, the money, like cream, always rises for and to the top few percent.
So now you want a tax on every ones retirement account as well as all parents kids education funds, as well as regular taxable investments for other life goals and health savings. A market transaction tax is either a tax on the middle class or a progressive way to keep the middle class out of the stock markets
If working, doing a little extra, saving and investing did not put you in a better position people would not do it