Ken Buck, Millionaire
Ken Buck, Representative in Congress for Colorado’s Fourth Congressional District, is a millionaire. To be specific, his net worth was estimated in 2017 at $1,206,005. As a US Congressperson, he earns a salary of $174,000 annually. Generally, former members of Congress find work in the private sector at considerably higher pay than what they earned working for Uncle Sam, so Ken’s prospects for a comfortable retirement are pretty good.
But, as a millionaire, Buck probably has investments in the stock market. He is likely to have lost money last week. The stock market, after a long, long period of steadily rising, went on a roller-coaster ride last week. And why?
Because of good economic news, for those of us who are not millionaires. What was the news that set off the stock market? Unemployment is down, and wages are up.
WTF??? Yes, that’s right. In January 2018, the economy added 200,000 new jobs, and real wages grew by 2.9%. And during the week of February 4, the stock market fell by over 10% — an official “correction.” That Friday, the Asian markets took a dive in sympathy.
Let’s define some terms.
Correction: A fall in stock prices exceeding 10% but less than 20%.
Bear Market: A fall in stock prices greater than 20%.
According to Fortune Magazine, in the last 20 years, there have been 10 market corrections, as measured by the S&P 500 index. Only two of these have turned into bear markets. The first one was the dot-com bust in 2000, and the second one was the crash leading up to the Great Recession. In the latter, the stock market lost over half its total value, in the former, only almost half. In retrospect, the dot-com recovery was relatively painless. So this correction may be just that: an adjustment that doesn’t turn into a problem.
But that doesn’t tell us why good news caused a correction, does it? Especially since it was very good news. For us.
Remember this picture? For almost every working American, wages have been stagnant, not for 20 years, but for 40. Low-income workers have actually lost ground since 1979, while middle income earners have gained barely 5%. During the same time, the “investor class” — those with enough disposable income to actually invest in the stock market — have seen exuberant income gains.
And the “investor class” did not like our good economic news!
A Dirty Secret
Ironically, CNN Money reported the good news this way on Friday, Feb. 2, the morning of the day that the stock market first went into free fall:
In a tight job market, there are more jobs available than there are workers to fill them. That forces employers to offer higher pay to attract and keep workers…
Job gains in January came across the board. Construction companies hired 36,000 workers. Health care businesses added 21,000 new hires. Restaurants and bars gained 31,000 more bartenders, waiters and cooks. Manufacturing gained 15,000 jobs.
Profits for businesses are also at record highs. But if wages are rising “across the board” then profits, perhaps, will fall. And for investors, that is really a cause for panic.
Oh, some economists and financiers are finding gentler reasons than anger over rising wages for the sudden volatility in the markets. Wage growth could lead to inflation in consumer prices, and we have an instinctive fear of inflation since the 1970s. The Federal Reserve will raise interest rates to combat inflation. Investors who have now had a full decade of low interest rates that allowed them to borrow freely without risk, now view higher interest rates with shock and trepidation.
No getting around it
For the middle class, especially mature members of the middle class, higher interest rates are a good thing, too. Non-millionaires — people poorer than Ken Buck — have their savings in Certificates of Deposit and other more secure investments, not the stock market. They can’t afford to risk losing their principle.
Interest rates for the last decade have been so low that CDs pay a fractional percentage in interest. But in 2007 it was easy to find CDs that paid 5% or more. This was a tremendous boon for retirees, and if interest rates rise, it will be again.
So there’s no getting around it. The investor class, which includes Ken Buck and everyone richer than he is, but hardly anyone who’s poorer, is in a panic because things might be getting better for regular folks. Higher wages for the young, and higher interest rates for the older. Everybody wins except the traditional, stockholding winners.
So get over it
Ultimately, whether the current stock market “correction” turns into a scary bear market, or a period of real prosperity for all Americans, depends on the attitude of millionaires like Ken Buck, and the really rich and powerful whose water he carries. Will they accept that the party’s over and stop robbing everyday people for their own enrichment? Or will they throw a tantrum over our good fortune and send us into another crash?
The graph at left pinpoints for us the end of prosperity for the middle class. In 1973, hourly compensation stopped keeping pace with worker productivity. Essentially all the new wealth created from that point on went to the millionaires.
Before that, conditions were favorable to ordinary people. Interest rates on savings were decent — high enough to make saving money attractive, but not so high that borrowing money to buy a home was prohibitively expensive. Working hard earned and meant better pay. There was power to the people. Those were the days.
There are those on the “far left” who say this is planned. In 1968 through 1973, there was people power. The cannon-fodder of the Vietnam War wasn’t having it: we took to the streets and we forced the end of that meaningless war that was killing and maiming our finest young men. And those crazy left-wingers will say that the moneyed interests, the famous military-industrial complex that President Eisenhower warned us about, vowed that the people would not win again. So they did their best to turn us into serfs.
They made our existence so marginal, made it so impossible to get ahead, that we had no way to rebel. They made some mistakes in seizing economic control, and gave us the bizarre stagflation of the decade of the ’70s. But they got better at it, and the next thirty years saw the rich getting richer and the poor getting nothing.
Now the men behind the curtain may have overplayed their hand. With the government in Washington tending towards overt authoritarianism, and its giveaways to corporations causing such exuberance that their carefully controlled labor market finally got out of control and wages began to rise, we see the signs of a return, at last, to economic normalcy. Wages are rising, interest rates, too. And we, the people, are taking to the streets once more.
Ken Buck bears a fractional responsibility for this. It won’t be his bear market. Yes, he voted for the amazingly wrongheaded 14% across-the-board corporate tax cut. Then he voted for a budget compromise that increases deficit spending even more. Mr. Freedom Caucus Deficit Hawk Buckeroo Cowboy voted with his party, not his conscience, and here we are.
It’s Buck’s bosses who will have to decide now. Will they let wages and interest rates rise? Will they tolerate the trickle of wealth back down to the real wealth creators, we workers who haven’t gotten our fair share for such a long time? If they do, we can expect things to stabilize. This blip in the market will be just a correction. Profits will shrink, but economic growth will continue.
But if they don’t accept this return to economic normalcy, if they take the profits of the long bull market that Obama engineered and Trump takes credit for, if they let bear run loose on Wall Street, then they, with their money in the stock market, will be the losers when it crashes. Our economy, Obama’s economy, the real economy, is strong. And we are already in the streets. Power to the people. Right on.
