Getting away from D.C. every so often helps with perspective. Life inside the Beltway can cloud one’s views and lead to an inflated sense of axis mundi. Often my trips to other cities, universities, factories, and rural areas leave me feeling restored and with a sense that things in the “real world” are better than D.C. believes. My recent trip to speak at Murray State University was a worrisome exception.
Despite a warm, gracious reception by students, faculty, community members and even the University President, there was deep concern about the economy and the ability to earn a living wage. When I suggested that wages were beginning to rise, the audience wanted to know when and by how much. “Why won’t the government raise the minimum wage by a couple of dollars?” and, “Will salaried employees see their incomes rise too?” were just two of the pressing questions posed to me by audience members.
One young woman spoke with me after my remarks and began to cry as she told me how her father was suffering to make ends meet for their family. His $37,000 per year job hadn’t had a raise in years though his hours had gotten longer and longer. Through her tears she asked when more wage inflation might occur. I wished I had an easy answer.
The asset inflation since 2009, on the other hand, it easily answerable with home and stock prices on a febrile tear. Those with assets are far better off than they were six years ago. Those who were without property or stock portfolio have been left behind. All the while healthcare, education, childcare, housing, and retirement savings have continued to squeeze available dollars.
Wealth disparity in the U.S. is at extreme levels relative to our history. According to the Pew Research Center, “…since 1983, virtually all of the wealth gains made by U.S. families have gone to the upper-income group.” Moreover, Oxfam International reports, “Runaway inequality has created a world where 62 people own as much wealth as the poorest half of the world’s population…The richest 1% now have more wealth than the rest of the world combined.” Sixty-two people in the world have as much wealth as 3,700,000,000 other people. That’s startling!
Those inclined to dismiss these concerns might remember Marie Antoinette’s apocryphal suggestion of cake. It didn’t work out well for Marie. Severe wealth disparity has always been a source of social instability. Modern examples include Ferguson, Mo.; Baltimore, Md.; and, perhaps, the political extremism resulting in violence at presidential candidates’ stump events. Away from D.C., I was greeted with a sad sense of desperation that morphed quickly to anger. There was also the frustration of being voiceless and without a villain to confront.
The present political vitriol has clear economic roots. Without a path to earn a way to a better life, social stresses and temperatures will continue to increase. Votes cast in anger may offer brief satisfaction, but there is no quick fix. The answer is real, organic economic growth and job creation. The U.S. avoided an economic catastrophe with central bank intervention, but the limitations of quantitative easing are becoming clearer.
There are real policy solutions that can improve our chances of reaching our economic growth potential. But these policy solutions are not being offered by either the Democratic or Republican presidential candidates. Rather than addressing the long-term problem of entitlement spending, we are hearing that such programs are off limits. Rather than breaking down barriers to trade, we are hearing protectionist rhetoric that will restrict free trade. Rather than encouraging immigration, we are hearing that illegals will be expelled and walls will be built. Rather than enacting corporate tax reform, we are hearing corporations get vilified. Rather than encouraging long-term investments in infrastructure and education, we are hearing about budget cuts and wealth redistribution.
The economy is recovering at a modest rate but it’s time for the Fed to take off the training wheels. It will not be painless, and investors need to understand the ramifications of recent Fed monetary policy. Without effective fiscal action, the transition from Fed largesse to monetary tightening will be exceedingly difficult. It’s time for our elected officials to assume responsibility for our economic future. Unfortunately, we’re not seeing much to be optimistic about so far in this presidential race.