Income Inequality. This red-hot topic has gathered plenty of heat here in the U.S. post the financial crisis of 2009 and during the ensuing financial market run-up. While equities have soared, those who in the class of people who were invested have prospered, whereas the folks at the bottom end haven’t seen concomitant increases in wealth.
Capital in the Twenty-first Century, Thomas Piketty’s book documenting some of the issues excacerbated by our current capitalist system definitely stirred the pot. And let's not forget commentators like John Oliver (just this past week) and Stephen Colbert. Even Bill Gross has joined the fray, writing in a USA Today column this week that incomes haven’t been this unequally distributed since the days of the Warren Harding presidency. In fact Gross says the current national minimum wage of $7.25 should be around $22 and hour if the wage had kept pace with productivity. Gross concludes that the economy is so skewed to helping corporations and the wealthy, that the system itself is in danger.
While he isn’t going that far, veteran market strategist Michael Aronstein, CIO of Marketfield Asset Management, believes the blame for our current inequality woes lies with one government actor.
“Federal Reserve monetary policy that in its first iteration serves to inflate assets when it’s very easy, results in a real discrepancy in asset prices throughout the economy,” he says in the attached video.
How this works is that people in the investable class who have access to assets can liquidate them for real cash. And if these assets have been rising in value (perhaps in a bubble), the amount of cash available to borrowers can be enormous. “Anybody who has an engagement with the nominal value of investable assets right now is getting wealth at a pace that’s hundreds of times beyond that available to somebody who’s outside of that stream.”
Are there any benefits from recent Fed policy? Possibly down the line. “Seepage of this monetary excess into the rest of the local economy, piece by piece, means you’re going to wind up with a generalized inflation later on in this process, that I don’t believe the Federal Reserve will be able to stop it, or have the will.” Could this lead to higher wages? That’s anyone’s guess at this point.
More from Investing: