The Dow Jones index tumbled 656 points yesterday in its worst decline in two years. Most people seem to think this is bad news. In reality it’s fantastic, because the drop was caused by wage growth among people who actually work for a living.
The stock market has been rising wildly for the last few decades–with the one exception of the Great Recession, from which it bounced back rather quickly–almost entirely as a product of stealing money from workers and giving it to rich shareholders. The “value” created in the market has been a byproduct of shifting both risks and costs onto workers, slashing their benefits, pensions and protections and eliminating their jobs entirely. In many cases this has been through offshoring labor overseas: why make a pair of jeans with American workers if you can do it 100 times more cheaply by using sweatshop labor in Vietnam? But in most cases it has been through automation and technological flattening. If you can have a robot make the gizmo, you can fire the worker. If you can have an algorithm handle your logistics, you can fire the manager. If you can sell directly through the internet, you can fire the retail worker. And if you can just keep people deeper in debt, working longer and longer hours in the gig economy for lower and lower pay with fewer and fewer protections, you can keep selling your products for high prices while slashing costs. And all those dividends can accrue to your wealthier and wealthier shareholders: the richest 10% who now own 84% of the stocks. The top 1% own more wealth than the bottom 90% combined. And it gets worse every year, no matter who is in charge.
And what do those shareholders do with the money? Why, invest in more assets and securitize them. Encourage more and more people to buy assets instead of do productive things with their time and money. So instead of defined benefit pensions, we get unstable 401Ks. Instead of people living in homes they can afford that are compatible with their needs, people buy property as an “investment” and watch it balloon in value, which in turn makes housing utterly unaffordable for young people who missed the undeserved generational lottery winnings handed out to the lucky duckies who bought property in the 1980s, 1990s and early 2000s. And if that securitization process crashes the economy a few times? No problem. We’ll make sure the shareholders remain solvent, indemnify the banks when they illegally foreclose on the victims, and keep the engine of rising inequality chugging right along without a hitch.
People used to be able to spend only 30% of their income on housing. People used to be able to take care of their families with a single wage earner, and without using credit cards. People used to be able to afford products built in factories staffed by their neighbors. Sure, the world has changed due to technology and globalization. But it would be one thing if everyone in the country were struggling with the changes as the developing world rose to compete. But they aren’t. The CEOs of these companies aren’t taking less pay. The shareholders aren’t taking it in the shorts and tightening their belts. No. The rich are making out like bandits because of these changes, while the rest of us suffer.
In the last year, the Dow has been rollicking like a teenager hopped up on amphetamines, as already obscenely rich shareholders anticipated the windfall from top-heavy tax cuts passed by Trump and the granny-starving Republican House Leader Paul Ryan.
But then something funny happened. At long, long last wages started to grow again after decades of stagnation. Wage growth has been lagging longer and longer at the end of each recession so that in the last few business cycles it was almost until the next downturn before the upswing in the cycle was actually reflected in the wages of the people who actually do the work. This month’s wage growth was boosted in large part by minimum wage increases that began to kick in due to progressive laws passed in many parts of the country, many long years after the official end of the Great Recession.
The investor class collectively lost their minds as a result. Inflation worrywarts who have been strangling economic theory classes and federal reserve banks since the 1970s flipped out as usual: for them, it’s always 1977, and America is always two steps from Zimbabwe. No matter how many decades pass without even a hint of harmful inflation, the hyperinflation bear is always just around the corner. They never seem to worry about asset inflation: if housing prices rise to the point of social insanity and near ruin for an entire generation, it’s no big deal. If luxury goods and executive salaries balloon to preposterous rates that would make oil barons blush, who cares? But when real people start to actually make some money again, it’s the end of the world.
So when reports of wage increases came in, the asset class began a collective bond selloff, which then triggered a stock selloff, which sent the blue chip indices tumbling.
And this is supposed to be bad thing? Hardly. What it proves is that what’s good for Wall Street is inversely proportional to what is good for Main Street.
Of course, what few pension funds remain are tied to the indices, as are 401Ks. But let’s not cry crocodile tears over that. 1 in 3 Americans has no retirement savings at all, 2 out 3 Americans have neither a pension nor contributions to a 401K, and the median 401K balance is only a pathetic $26,000. Financial dependence on the market indices is a game of the privileged. It’s true that when recessions hit the markets hard, the poor and middle class suffer by extension. But if they don’t get to reap the rewards when times are good, then the logic of the peasant revolt starts to kick in–which is part of what the 2016 election was all about on both sides of the aisle.
With the Dow tumbling due to real wage gains, at long last the people who do things in the economy are getting a little more, and the people who exploit them by owning things are getting a little less. Good. At least it’s a start.