2020 has been a trial by fire for the global economy.
The spread of COVID-19 instigated a sell-off in markets, which eliminated years of gains in just three weeks in March. As the market nosedived, states issued orders to eliminate non-essential travel, corporations began to encourage employees to work from home, the unemployment rate skyrocketed to over 15% and small businesses closed at a record rate.
Since the collapse in stock valuations in March, the market and the economy have become decoupled. The market has marched back to its pre-pandemic highs. But the economy’s recovery lags behind the impressive gains seen in market indices like the S&P 500 and NASDAQ. Meanwhile, real economic growth is barely beating inflation. This lays out the stark disconnect between what’s happening on Main Street and what’s happening on Wall Street.
The Wolf of Pennsylvania Avenue
That said, you need to look no further than avid Twitter user @realDonaldTrump to see that our president loves the stock market. In fact, it’s seemingly his preferred measure of presidential success. Even before the news broke about the president’s taxes, President Trump’s knowledge of and comments on finance have piqued our interest.
Trump participated in an ABC town hall Sept. 15 where he was asked about the state of the country. One of the topics covered extensively was the economy and the market. He insisted that the market has largely recovered and insinuated that — even if you were laid off or came into hardship as a result of the pandemic — you probably made some money at some point during his presidency. After all, everybody has a 40(k), IRA, 529 or another investment account, right?
The President said, “everybody owns stock” in the ABC town hall. The only problem is that he’s wrong. In fact, the working class barely makes a dent in stock ownership.
The reality is hard to stomach: in a time where millions of people were unemployed and struggled to make ends meet, the richest Americans got even richer. The reason why they did is relatively simple: the stock market is arguably the single greatest source of economic prosperity in America. Odds are you’ve heard “stocks always go up” at least once this year, either from your reddit friends, Barstool’s Dave Portonoy or your family members who accidentally joined a pyramid scheme. And to some extent, those weirdos are right.
So Who Owns Stocks?
Since the Great Recession, index funds like the S&P 500 have saddled double-digit returns 9 out of 10 years. It would be nice to believe that what the president said is true; that we are all benefactors in the growth of our nation. However, many of our neighbors and colleagues are not. In the U.S., 84% of stock is owned by the top 10% of households. More than half of that is owned by the top 1% of earners, which means that half of our country is being left out of the single greatest catalyst for wealth growth. In fact, 45% of Americans don’t own any stock, and what little the working class does own is dwarfed by the upper class’s respective holdings.
At face value, that might sound like the partisan rhetoric you see on whatever mainstream media outlet you demonize. But this concern is agnostic to political leanings. It is being discussed in a wide variety of financial journals, academic forums and political bodies.
Wealth inequality is not a new development; we’ve been talking about it for years. Against the backdrop of COVID-19 though, many politicians, economists and journalists think we might be worse off after the pandemic than we ever were before. The so-called “K-shaped” recovery suggests that COVID-19 might have been the catalyst for a foundational change in our markets and economy. The rich are already getting richer and the middle class has largely been in decline for many years before Trump and Obama. However, the K-shaped recovery goes beyond wealth creation. It could affect access to opportunities in the job market, education and beyond.
Is There a World Where Every American Can Participate in the Financial System?
It’s a sorry state that so many Americans are financially squeezed in a way which makes it difficult to contribute to their future through investing. However, regardless of where you fall politically, there is a possibility the president’s comments could become a reality. There are plenty of political ideas proposing how we can help the working class invest more — like insisting upon companies paying higher wages, matching 401(k) contributions to eligible employer plans or offering our employees shares of their enterprise as compensation for the value they’re creating.
In an ideal world, creating new opportunities to include all Americans in our financial system is neither a liberal or conservative idea, but something we can reasonably agree upon. Otherwise, it’s fair to say we are sowing the seeds of discord between neighbors; unabashedly growing a chasm between the rich and the working class.