Week 23 of the Quarantine
SAN MARTIN, ARGENTINA – “The cattle are gone.”
Our office window looks out on the pasture. Yesterday, there were 120 cows in the field. This morning, none.
Yesterday, we had heard some moaning in the field. Calves were separated from their mothers. Neither mothers nor calves were happy about it.
But this moaning was a little different. Strange. Unsettling. Like something was seriously wrong. We didn’t know what to make of it.
This morning, we found out.
Bad News
“I’ve got some bad news, Boss,” said the foreman.
“We lost two cows yesterday. So we moved the whole herd out of the pasture last night.”
“What happened?”
“These were the cows that just came down from the ranch. We shouldn’t have left them in the alfalfa. It was too rich for them.
“We’re putting them back now… But we’re keeping a closer eye on them.”
We explained that we had heard an odd-sounding moaning coming from the field.
“Oh… yes… That’s what it was… They eat the alfalfa. They’re not used to it. It blows up in their intestines, blocking the normal flow. They swell up and die.
“When you hear them crying out like that, you need to get a sharp knife and go out and find the cow. You stick the knife right into the stomach. Make sure you puncture the intestines so the gas can get out.”
“Ok…”
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Cows coming back into the alfalfa
Chanting Crowd
Meanwhile…
The Washington Post reports:
The coronavirus recession is over for the rich, but the working class is far from recovered
U.S. stocks are hovering near a record high, a stunning comeback since March that underscores the new phase the economy has entered: The wealthy have mostly recovered. The bottom half remain far from it.
This dichotomy is evident in many facets of the economy, especially in employment. Jobs are fully back for the highest wage earners, but fewer than half the jobs lost this spring have returned for those making less than $20 an hour, according to a new labor data analysis by John Friedman, an economics professor at Brown University and co-director of Opportunity Insights.
What’s that noise in the background… down the street? Is that a crowd chanting, “Eat the rich… Eat the rich…”?
Small Price to Pay
When people come to think that the “system” is unfair… it’s not long before things get ugly. Yahoo! Finance reports that the Democrats are sharpening their knives:
Biden’s tax plans have been analyzed by a range of groups, including the American Enterprise Institute and the Brookings Institution. A combination of multiple analyses found that Biden’s plans would mean that the richest Americans would see their taxes go up by 13% to 18%.
Americans of more moderate means would also see tax increases, but they have been called “indirect” and amount to a smaller increase: around 0.2% to 0.6%.
A President Biden would push for higher taxes on people making more than $400,000 a year for both payroll taxes and capital gains. It takes an income of $538,926 to be among the top 1% of earners nationwide.
A 13% tax increase seems like a small price to pay for all the bounty delivered to the rich by the feds over the last 30 years.
Rich people own financial assets – stocks, bonds, and commercial real estate, for example. They get richer not just from fat paychecks, but also when those assets go up in value.
And over the last three decades, the Federal Reserve has made it its business to make sure those assets keep going up in value.
The 1990s began with the Dow at almost exactly one-tenth of today’s level. Which means the rich multiplied their wealth – as measured by the Dow – by nearly 10 times over the last three decades.
That gain – in terms of the wealth it represented – was worth about $7.5 trillion (based on the increase in the market cap of the Dow stocks).
Or, divided by the top 10% of the population, it meant a gain of about $1 million for every family of four.
During that same time, the median household income went from $35,000 to $78,000 – a gain of just a bit more than two times.
Why the big difference in outcomes? How come the rich got so much richer while most not-so-rich people barely kept pace with inflation?
Implicit Guarantee
There were probably many causes. But the one that stands out is that the Fed was backing the stock market with an implicit guarantee (the Greenspan Put): If prices fell, the Fed was there to push them back up.
This flimflam got underway after the crash of 1987. It then became progressively bolder following the Nasdaq crash of 2000… the mortgage finance crash of 2008… and finally, the COVID-19 crash of 2020.
What this shows is that the Fed’s efforts at inflation work fairly well when applied to the capital markets. There are only so many stocks, bonds, and commercial properties. When the Fed puts more money into the Wall Street economy, in classic style, that money chases up assets, raising prices.
What else can investors do with the money?
(In the Main Street economy, however, inflation is more complicated. Not only can the feds not really increase GDP growth… they can’t reliably induce consumer price inflation either. But we’ll get to that tomorrow…)
Not About the Money
Meanwhile, the gap between the rich and the not-rich is attracting more and more claptrap. Much like white people trying to atone for their whiteness, rich people are now trying to save their necks by joining the sans-culottes.
Here’s a Guardian article from last month:
A group of 83 of the world’s richest people have called on governments to permanently increase taxes on them and other members of the wealthy elite to help pay for the economic recovery from the COVID-19 crisis.
The super-rich members, including Ben and Jerry’s ice cream co-founder Jerry Greenfield and Disney heir Abigail Disney, called on “our governments to raise taxes on people like us. Immediately. Substantially. Permanently.”
Of course, there is nothing to stop any of them from sending the feds more money. No change in tax law needed.
But it’s not really about the money.
In effect, these mega-rich people were the major recipients of property stolen from the public. And now, they are so filthy rich that the marginal utility of an incremental dollar is almost zero.
Bless their gold-plated hearts, they “take the knee”… and hope the mobs will spare them.
What they are after now is status, prestige, and social approval..
And now, they can buy it with the public’s money!
Regards,
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Bill
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