Inequality and Short-Term Thinking Hurt the U.S. Economy
What is “Russiagate,” other than an effort to sweep the problems afflicting U.S. society under the proverbial carpet? Russia has become the ideal scapegoat to avoid talking about the real problems that Americans face. The U.S. economy is just one of these problems, but it’s the one that most Americans experience directly.
After all, since Donald Trump won the 2016 election, has anyone dared discuss what everyone knows to be the biggest problem in America today? Not in the least.
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The Democratic Party could have worked with, or against, President Trump and the Republican-dominated Congress. They could have focused on the issues that really affect people’s lives. The tax cuts are one example.
The Trump tax plan could have been better—it needed more opposition. Its main effect has been to distort the market with companies boosting, or trying to boost, their stock price with buybacks. (Source: “Corporate stock buybacks are booming, thanks to the Republican tax cuts,” Vox, March 22, 2018.)
Tax Cuts Stimulated Speculation, Not the Real Economy
The tax cuts were supposed to stimulate the economy. They weren’t supposed to help boost stock prices on Wall Street. Or at least, they weren’t supposed to have done it so quickly.
In an ideal situation, Wall Street’s performance reflects the performance of Main Street. In other words, when the real economy (the kind that produces goods or services) does well, stocks do well.
The U.S. economy now is running on the opposing premise.
You may be justified in thinking that candidates from either party would have addressed the issues that really affect people. These would be the kind of issues that get people to listen and then rush to the voting booths on Election Day.
The Democrats, in particular, were handed an opportunity after the defeat of Hillary Clinton. It was an opportunity to change course from the Clintonite doctrines, which opened the markets to the kind of speculation not seen since the 1920s.
Is it any surprise that exactly eight years after Bill Clinton left office, the world experienced the worst stock market crash since October 1929?
Political Leaders Are Not Paying Attention to Average Americans
It’s a testament to the distortions, prevailing as much in the Capitol as they do on Wall Street, that the Democratic Party has not paid any attention. Rather than addressing the biggest problem facing Americans—income inequality—they are betting the house on Russiagate.
Indeed, the Democratic National Committee (DNC), amid triumphant fanfare, has launched a civil lawsuit against the Russian government, the Trump campaign, and none other than Julian Assange of WikiLeaks fame. (Source: “Why the DNC Is Fighting WikiLeaks and Not Wall Street,” Truthdig, April 24, 2018.)
Assange remains holed up in the Ecuadorian embassy in London. But how is such a small detail going to interfere with an issue of such imposing significance to the average American?
The most curious observers of American society would surely like to explore the brains of the DNC bigwigs, who came to the conclusion that what Americans care about most is Russiagate.
By all means, that minor inconvenience of the growing financial pressure that families, which not long ago considered themselves to be “middle class,” face is a mere nuisance.
The DNC seems sure that it will “make America great again” with a lawsuit—against Vladimir Putin and Assange, no less. It sounds like a plan. Average families’ fears of not being able to afford medical care or tuition are not problems.
Let the Republicans worry about those things.
The trouble is that no mainstream political party has addressed these issues. Bernie Sanders tried. In fact, he gathered so much steam in the Democratic nomination race that he won over the millennials—the American leaders, like it or not, of the not-so-distant future.
Trump was smart. As the excellent salesman he is, candidate Trump heard what average Americans were worried about. He adopted many of Sanders’ talking points, digesting and re-packaging them for a conservative audience.
Had candidate Trump graduated to statesman, he would have followed through on his promises to restore the middle class.
He would have addressed the problems of the U.S. economy instead of falling into foreign policy quagmires, which could lead to World War III.
America Changing from Democracy to Echo Chamber for the Privileged
Thankfully, many have noted, America is a democracy. Citizens can vote and express a choice for the candidates who will serve their interests best.
Yet, long ago, Americans should have wondered just how much choice they had. None of the mainstream politicians, regardless of the party they have chosen to represent, have spoken about the real issues.
The Dow Jones’s mesmerizing performance in 2017 managed to distract everyone.
The stock market became the finger in the famous anecdote of the man who points at the moon. His goal is to have us look at the moon (the economy, in this case), while everyone stares at the finger instead.
Meanwhile, the Democrats want you to believe that the moon is Russia, while the Republicans are pointing to immigrants and China.
Nobody, however, has addressed the real problems of the U.S. economy.
It’s Political Suicide to Ignore the Economy
Frankly, it’s political suicide to ignore the economy, in the sense that many would-be politicians could win votes by addressing the real economic problems.
So many Americans have endured hardships that they never expected over the past decade; they are waiting for someone to address their plight. It should have been a no-brainer for any political candidate or organization to address concerns about the U.S. economy.
Inflation, which the Federal Reserve has been so keen to control, is mostly because of higher oil prices and energy costs.
These, in turn, drive up the cost of most consumer goods, especially food. Not to mention, of course, that it costs more for the average employee to commute to their jobs—if they’re lucky enough to have one.
A New Cold War More Dangerous Than the Original One
Russiagate has put pressure on Trump to steer the United States into a new “Cold War” against Russia. The effort has worked better than anyone could have expected.
Tensions between Moscow and Washington are higher than they ever were during the actual Cold War, which lasted from 1947 to 1991.
In those roughly 44 years, despite the deployment of ever deadlier nuclear missiles and the platforms to launch them, there were clear rules of engagement.
The Soviet Union was happy enough to use the U.S. dollar to trade its raw resources. There was a hotline, open 24 hours, linking the leaders of the two superpowers to prevent any misunderstandings. There was also a tacit acceptance of spheres of influence.
All of that has gone underground now. Despite the fewer nuclear warheads positioned in various bases, the U.S. can still count on the North Atlantic Treaty Organization (NATO) while the Russians long ago dismantled the equivalent Warsaw Pact. Oddly, the world faces a greater danger of nuclear deflagration today than it did 30 or 40 years ago.
The one positive note is that the U.S. defense industry, or the military-industrial complex as President Eisenhower called it (as he warned Americans about not letting it get out of control), is booming.
Is that good for the U.S. economy though?
No. A handful of investors, those who got into defense sector stocks a few years ago, will have done well with their savings. However, the defense sector does little to diminish the excessive influence of the so-called “free market.”
Income Inequalities Are Rising
Income inequalities prevail. And these, Milton Friedman notwithstanding, are eroding the strength and resilience of the overall U.S. economy.
The free market has become the basis of American democracy. The U.S. Declaration of Independence states that “Life, liberty and the pursuit of Happiness” are unalienable rights.
At no point does the famous document—or the U.S. Constitution for that matter—suggest that a predatory form of the free market should occupy any special place in American society.
But extreme wealth concentration on Wall Street has encouraged short-term gains. Politicians have stopped thinking about creating long-term value. Everyone is complicit, not just politicians, of course.
The media and corporations have placed such emphasis on quarterly results that companies’ goals are simply to serve their shareholders. They no longer serve the public or their employees or society at large.
Short-Termism and Its Discontents
Nobel laureate Joseph Stiglitz has attributed this thinking—described as “short-termism”—as an excessive reaction to the economic problems of the 1970s. In a sense, the 1970s were the last decade of Roosevelt’s “New Deal” (which became the “Great Society” under Lyndon Johnson).
For better or for worse, it was the decade that generated the highest and best distributed economic growth in history. Short-termism, based on the venerable theory of the “invisible hand,” has not worked.
Perhaps the markets required some stimulus in the form of caring about shareholders and earnings. But, to use a car analogy, you cannot drive by constantly accelerating through traffic without crashing at some point.
Whatever good short-termism has done was over long ago. It’s time to consider applying the brakes and looking at the bigger picture, one that focuses more on wealth distribution. There’s no reason why the free market cannot play a role in that sense.
Excessive reliance on short-term gains—achieved through the relaxation of many SEC regulations (even in the Clinton years)—has created the megastar CEO. From average salary differences between top management and an average employee of 20 to 1, it’s now as high as 300 to 1.
American voters can look at this inequality as a moral problem. Yet, they should also consider it a problem that affects the economy as a whole. Businesses cannot rely on a handful of individuals to buy and use their products.
Society at large must have access to sufficient wealth—rather than debt—to promote a more comprehensive growth. Then there’s the problem of class conflicts, which lead to violence and instability.
Sooner or later, those in power will realize that something has to change in the U.S. economy. Not doing so could prove disastrous.
Neither the Democrats nor the Republicans have captured the message yet. And time is running out.
