'Dirty little secret': Rand Paul explains how the rich get richer through inflation — and why it helps the GOP
Inflation impacts everyone as it erodes the purchasing power of money. But perhaps not everyone is affected to the same degree or in the same way.
U.S. Senator Rand Paul recently claimed escalating price levels have had a disproportionate impact on blue-collar workers and this has got them leaning toward Republicans.
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“The workers are for us because their wealth is being eroded, their dollar’s being eroded … They can't afford the trips they want to take.” he said in an interview with Fox Business, referencing auto workers on the assembly line.
Contrastingly, the wealthy experience a vastly different outcome, according to Paul, who was on the show “Kudlow” to discuss government spending and how it relates to the national debt and inflation.
“The rich have gotten richer, but that's the dirty little secret of inflation,” he pointed out. “People get the money first, invest it, make money off their investments. The people it trickles down to get more money, but then the prices have risen to match their increased wages.”
Paul's contention that unfair wealth distribution, such as he described on "Kudlow," is driving working-class support toward the GOP is supported by polling data.
According to research by Morning Consult, middle-income Americans and those without college degrees are now more likely to say that Republicans care more than Democrats about "people like me" than vice versa.
Divergent destinies
During the Fox interview, Paul noted that “the very wealthy have gotten wealthier.”
He isn't alone in noticing this trend, which has captured widespread attention. In January, the non-profit Oxfam reported that the world’s billionaires have become $3.3 trillion wealthier than they were in 2020, with their wealth increasing at a rate three times faster than that of inflation.
The report painted a starkly different picture for the working class, noting that individuals are working harder and longer hours. Yet, they struggle to match the pace of inflation. It stated, “The wages of nearly 800 million workers have failed to keep up with inflation and they have lost $1.5 trillion over the last two years, equivalent to nearly a month (25 days) of lost wages for each worker.”
The reality is, billionaires have been able to grow their wealth faster than the pace of inflation through a combination of assets and strategic investments.
Here’s a look at two particularly notable examples.
Equities
Billionaires strategically utilize stocks and equities as a key component of their investment portfolios. For some of the most famous billionaires, a substantial portion of their wealth is linked to the companies they founded or currently manage.
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Companies have the ability to increase prices for their products or services in response to inflation. As inflation drives up costs, businesses that can successfully pass these costs onto consumers through higher prices can maintain or even grow their profit margins. This, in turn, can lead to increased earnings and potentially higher stock prices.
The Oxfam report highlighted how large firms were making oversized profits during inflationary times, noting, “148 of the world’s biggest corporations together raked in $1.8 trillion in total net profits in the year to June 2023, a 52% jump compared to average net profits in 2018-2021.”
While stocks are also volatile, the market as a whole has performed remarkably well during the current inflationary period. The S&P 500, for instance, has seen an 83% increase over five years.
Oxfam also observed that share ownership “overwhelmingly benefits the richest,” with the top 1% owning 43% of all global financial assets. According to Gallup, 61% of Americans say they have money invested in an individual stock, a stock mutual fund, or in a self-directed 401(k) or IRA.
You don’t have to be in the billionaires’ club to access the stock market. These days, many platforms enable you to buy and sell stocks with minimal initial investment requirements and zero commissions. Some apps can even help you invest in index funds like the S&P 500 automatically using your spare change, making it easier than ever to grow your wealth alongside the world’s financial elite.
Real estate
Real estate is a well-known hedge against inflation. As the price of raw materials and labor goes up, new properties are more expensive to build. This drives up the price of existing real estate.
Well-chosen properties can provide more than just price appreciation. Investors also get to earn a steady stream of rental income. Since rent typically increases with inflation, this creates an effective hedge against the diminishing purchasing power, thereby preserving and potentially enhancing the investor’s real income over time.
The U.S. Federal Reserve has implemented aggressive interest rate hikes to tame inflation. While rate hikes are intended to curb investors’ fervor, real estate remains a popular asset. Over the last five years, the S&P CoreLogic Case-Shiller 20-City Composite Home Price NSA Index has surged 49%.
Of course, that also means properties are not cheap these days, especially with elevated mortgage rates.
But you don’t need to buy a house to start investing in real estate. There are plenty of real estate investment trusts (REITs) as well as crowdfunding platforms that can get you started on becoming a real estate mogul.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
