Highs and Lows at Year’s End

The stock markets have hit all time highs, yet on the same day President Obama’s poll ratings have hit an all-time low. This oddity says much about what is happening to politics and inequality in America.

Stock markets are high because the Fed has kept pumping money into the economy; the money chases assets driving up the prices of real estate in top markets (SF, NY, Miami), stocks, and other biddable assets. Stocks are also benefitting from an optimistic bias about internet and technology gains (thus Amazon, which has never made a profit, has a stock value above $400 per share, and Facebook and Twitter have valuations that imply future profits many, many times today’s levels.) And of course, some companies are making real profits by cutting labor costs and taking advantages of opportunities to sell to the fast expanding global middle class, especially consumer goods, auto, and manufacturing firms.

All that is good. But very little of it is benefitting the average worker. Everywhere in the rich world, median wages are stagnant; unemployment is relatively high to obscenely high; and governments are cutting back investments and spending in the name of austerity. As a result, the ordinary person views his or her prospects growing dimmer, falling ever further behind the upper and ultra-upper elites, and ever more at the mercy of market forces that seem to give more to those who have, and take away from those that don’t.

The shield of the average person against such trends has been, at least since the 1930s, the ability of government to provide public goods, public investments, and mitigate inequality. Government provision of city, state/provincial, and national parks for recreation; affordable public education to provide equal opportunity; public health care; progressive taxation; and substantial levels of employment and secure pensions from the public sector, have underpinned a middle class lifestyle even for those of median income.

Yet now all that is being swept away.  Public goods provisions, from congested streets and badly maintained roads and bridges and parks to stark inequality in education and the severe downgrading of public support for education (especially college) has left working and middle class families increasingly on their own.  Pension promises are now being undermined by public bankruptcies.  Assets that once made people feel secure, from 401Ks to house values, seem remarkably unsecure in their frequent booms and busts rather than steady growth.

At this time of increased risk, government under Obama seems increasingly dysfunctional and incompetent to protect people from the perils of bare-knuckled market economics.  No doubt the failure of the Obama health-care website is the most egregious example of incompetence in something people counted on to protect them against catastrophic risks.  But the failure to get any kind of immigration reform, the sequester, the government closure, and even the inconclusive wind-down of the wars in Iraq and Afghanistan (which now strike most Americans as needless and tragic wastes of American lives and resources) show American government as weak.

These are tough times for everyone outside the top 1% in America; but for the 1% who control most assets and most companies things are better than ever.  So there you have it:  markets are at all-time highs, Obama (and government) approval ratings are at all-time lows.  Welcome to Divided America!

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About jackgoldstone

Hazel Professor of Public Policy at George Mason University
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2 Responses to Highs and Lows at Year’s End

  1. Debra says:

    1% – really? It’s a fraction of the 1% that control the wealth of this world….it’s really unfair to include professionals, such as doctors, lawyers, accountants, engineers and business professionals who have made investments in their education and work countless hours of UNPAID overtime, since these professionals also tend to work 60-80 hours a week for their incomes, to be part of the so-called 1%. Many also are self-employed and have to invest in their offices, equipment, insurance – and create jobs for 99%. Those same people are also at the mercy of the fraction – as jobs are outsourced and pensions go away. You’re an economist…let’s get a little more specific on the numbers so the masses don’t focus on the poor sucker with a mountain of college debt, a huge investment in their business, no personal or family life – but they have a 6-figure income so that makes them an object of disgust instead of focusing on their efforts to better themselves. Come on, Jack – you’re smarter than this. Let’s all resolve in the new year to stop being manipulated by created terminology and focus on researching out the truth and making some positive change.

    • Dear Debra,
      Thanks for your comment. I include most of the “professionals, such as doctors, lawyers, accountants, engineers and business professionals who have made investments in their education and work countless hours of UNPAID overtime, since these professionals also tend to work 60-80 hours a week for their incomes,” as part of the “middle class” who are indeed suffering and at the “mercy of the fraction” as you put it. You asked me to be specific; in the US to be in the top 1% you have to earn $394,000 in declared earned income (that means not counting home appreciation, non-taxable pension contributions, and unrealized capital gains). Most hardworking professionals I know are lucky to make $300,000 per year. In Washington DC, where I live, it’s worse — to be in the top 1% of earners locally, you have to earn at least $500,000 per year. So for most people with six-figure incomes (and by FAR the majority of those have incomes well under $400,000 per year), they are at the upper end of the upper-middle class, but not in the top 1%. You are certainly right that the top one-tenth and one-hundredth of one percent do even better; but the top 1% as a whole is still doing much MUCH better than the rest of America.

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