The rise of populism, right-wing candidates, and unpredictable jingoism has been correlated in the past with financial crises (quite closely, in fact). My friend Cathy did a great job of exposing this correlation, and noting that perhaps we shouldn’t be surprised about what’s happening in Austria, in Britain, in Italy, France, Germany, and of course the United States. But the surprise, for me, lies elsewhere. A broad swath of U.S. economists would have claimed, as recently as weeks ago, that the 4.3% national unemployment rate, hundreds of thousands of new non-farm payroll based jobs created every month, and slow but steady GDP growth were representative of an economy in steady hands, in good and improving shape. While the global financial crisis “wiped off 13% of global production and 20% off global trade" including scores of defaulted mortgages, student loans, and stable jobs. But they came back, didn’t they? The stock market hit all-time record highs in 2016, didn’t it? So are we recovering or not? Is it a weak recovery or a strong one? Is this actually a financial crisis?
The rise of income inequality is one suggestion that something is very, very off: while unemployment is low, there are is still 7.4 million Americans who are jobless, and in the meantime, the corporate profits, heights in the stock market, and low interest rates mean that those with means have been able to invest and take leverage on their dollars to accelerate their wealth, while leaving others out. My colleague Morgan published a brilliant report describing the changing nature of the equity markets: as companies go public later, only private investors get access to some of the most dynamic upside and growth of these companies. Thus, those who have assets to qualify as accredited investors (millionaires, basically) can participate, and the rest of the population, who might simply want to invest or grow their savings cannot. A few days ago, I tweeted a passing thought about the challenges with buying a house a few days ago and was stunned by the response to it:
I was naive about how many people’s first house down payment was made by their parents until fairly recently. Wealth really is longitudinal.
The examples are endless. Income inequality is the phrase we use as a placeholder to describe what should better be described as “wealth and income inequality”. Assets, clinical health, and access to the knowledge economy– or at least access to opportunity– are insufficiently measured in “income” but are matters of wealth. But if we are so close to full-employment, the level of wealth inequality that would qualify as crisis would have to be profound. Is that where we are? Possibly. And this is bad. Poverty is not simply a matter of basic human needs, but of context. There is a joke in Manhattan that two doctors who send their child to private school feel poor. But there’s something to it. Inequality is socially corrosive, and leads to conflict and drags down the health of entire societies. Richard Wilkinson, an epidemiologist, does great work researching and describing this phenomenon.
Another suggestion is wage stagnation. Jobs have come back, with hundreds of thousands added to the economy almost every month for the last 5-6 years. Wages, however, have remained flat. Whichever jobs left during the Great Recession of 2008 were not replaced with jobs that paid as much, or whose wages grew apace. While some critics point out that 2002 to 2015 saw wage growth higher than inflation, and a handful of years with > 2% and even 3%. But healthcare costs, childcare costs, even housing costs, have risen faster. And the delta between my 15% pay raise and my 400% deductible increase, or 200% childcare cost increase is where there emerges a crisis. If I interact with the healthcare system in an odd way, so as to avoid paying a deductible, or I let my personal debt accumulate, or I fail to finish my or online Bachelor’s, because of the demands of my family and job, I may be falling into a systemic vicious cycle that sets me behind, exacerbated by wealth inequality, but driven by the fact that my job simply doesn’t pay enough to help me get ahead. In this way, the national job statistics may tell an optimistic story about the economy, but there remains a gap for large swaths of the population.
Why have wages stagnated? Are the pressures of globalization really a factor? Does the fact that it’s cheaper to make clothing in Vietnam, electronics in China, customer service in India, et cetera, really push global wages down that far? Are the pressures of technology the driving factor? If technology has begun to automate away formerly high-paying or wage-accelerating jobs, which ones are they? Is that the missing Rust Belt story? These questions are endlessly complex, and I hope I can unpack them live (with you!) while I try to understand the state of today’s political economy; the dying dregs of Economy 2.0 are showing many signs, but I don’t feel clear on what is actually happening, or what that means for Economy 3.0. A month ago I thought the US econmy was recovering,a nd goign to be fine. today, I feel very pessimistic. Donald Trump’s election is a function of that, of course, but only in that it cataylzed me to start thinking about this. I happen to believe (and the data confirms) that Donald Trump won because of racism and cultural issues, not the economy, but I do still think we have a big question hanging over us. And I have to believe the answers are among the most pressing of our time. None of the coherent neoliberal economic narratives today balance sufficient compassion for the struggling worker with the amazing wealth accumulation, value-creation, and innovation the economic centers of the world are in the midst of. And if the optimists about technology, globalization, and social equity want to have it all, we need to have this story sharp, and it’s still very fuzzy today.
If there’s anything in the above that I’m misunderstanding, please feel free to jump into the comments or write me directly. I’m learning out loud, here.