There Can Be No Change.

“Extemporaneous” – that’s how one media outlet described Donald Trump’s lengthy speech in the Rose Garden on Friday following the US jobs report.

That’s a rather polite description. It was bizarre.

For 45 straight minutes, the president regaled the nation, careening haphazardly from topic to topic with abandon. “People are driving. They’re driving around town. Maybe I’ll drive back to New York with our first lady – in a trailer”, he mused, during an interlude about recreational vehicles.

Describing the drop in the unemployment rate to 13.3% (which, despite being far better than expected, is still unfathomably high), Trump called Friday “the greatest comeback in American history”.


I was careful not to cast aspersions. It would be wholly disingenuous to breathlessly lament the economic and social tragedy that’s befallen America over the past three months, only to downplay the first piece of good news the country has received since February.

But, as protesters prepare to the fill the streets over the weekend to reiterate demands for racial equality, it’s important (crucial) that we don’t lose track of the rather stark reality facing the world’s largest economy and foremost democracy. If we do, we’ll lose them both – the economy and the democracy.

In “We’re All Mad Here“, I highlighted a pair of simple visuals, illustrating two equally simple points. The jobs added in May are a fraction of those lost in March and April, and African American unemployment rose last month to the highest in a decade, pushing the gap with white workers sharply higher.

Stocks surged, of course, and that means the nation became more unequal this week, and especially on Friday.

Some may call that a ridiculous way to think about things, but it’s true. The chart below carries a hyperbolic title (and a deliberately flat subtitle), but it’s important America understands this dynamic.

When stocks surge, it simply doesn’t matter as much to the masses as it does to the rich.

And this situation is not improving. In fact, it’s getting more uneven with each passing quarter.

At 12% as of the fourth quarter of 2019, the bottom 90%’s share of stocks held outright or in mutual funds, has never been so low in Fed data going back more than three decades. That share was as high as 22% (so, bascially double the current level) in 2003. The average over time is more than 16%.

This is why it is maddening when someone like Larry Kudlow goes on television (as he did Friday) to tell voters that the stock market will be “slammed” if Joe Biden wins in November.

Consider the figure below, which shows the value of corporate equities held by the Top 10% versus the middle-class and lower-income Americans.

The fact is, allusions to the stock market by the current administration (or any other administration for that matter), are a red herring – a kind of cruel canard. Most Americans don’t care about the stock market or, if they do, odds are they shouldn’t.

When you break things down by race, the picture is simply egregious.

As you ponder the juxtaposition between, on one hand, protests against pervasive inequality, and, on the other, a stock market that’s poised to recoup all pandemic-related losses, consider that African Americans owned just a 1.4% share of equities held outright or in mutual funds as of December 31, 2019. For Hispanic Americans, the figure is 1.7%.

All of this should be illegal – not literally, but certainly figuratively. That is, the US needs to seriously consider taking dramatic steps to reconfigure American-style capitalism.

“I was told by a journalist talking to me on a… key global issue Thursday [that] no matter how interesting the facts I presented were, the editorial line of what the story was going to be about had been set in stone from the start”, Rabobank’s Michael Every wrote Friday. “They were powerless to change the narrative”.

This narrative – that the current system works – is being pushed to extremes, ironically by the administration of a populist executive, whose cabinet is comprised of the ultra-rich and whose advisors (Kudlow being the quintessential example) are committed to the kinds of policies which will not only preserve the dynamics that create visuals like those shown above, but are in fact destined to make those already stark visuals even more striking.

Note that Kudlow is now speaking about Biden in the same terms that Trump once reserved for Alexandria Ocasio-Cortez. First, it was Ocasio-Cortez and Ilhan Omar who were the “radicals”. Then, it was Bernie Sanders that was the “dangerous socialist”. Then it was Elizabeth Warren who will destroy American prosperity. Now, we’ve reached the point where supply-side stalwarts are telling the public that Joe Biden will destroy American capitalism.

When you think about that, remember that Joe Biden is a man who, exactly one year ago, told rich donors the following:

The truth of the matter is, you all, you all know, you all know in your gut what has to be done. We can disagree in the margins but the truth of the matter is it’s all within our wheelhouse and nobody has to be punished. No one’s standard of living will change, nothing would fundamentally change.

Those comments came at a fundraiser held at the Carlyle Hotel.

The point is simple: According to the current administration, Biden is what now counts as a left-wing extremist who will crash the stock market upon election – the same Biden who literally told rich people that if he’s elected “nothing would fundamentally change”.

America’s choices have thus been narrowed down to 1) the current administration, which is a strange fusion of firebrand populism with starchy GOP orthodoxy and supply-side economic “solutions” proven to perpetuate inequality of all sorts, or 2) an administration run by a Beltway wall fixture, whose (verbatim) promise to the rich is that nothing will change.

It’s not just the financial media that is “powerless to change the narrative”, as Rabobank’s Every put it. Everyone is powerless to change it, apparently.

And that, folks, is why you see people in the streets.

“One would think such simple truths would still be covered by financial market analysts”, Every went on to say. “They aren’t, for the most part. How many have read any Marx or his intellectual protégés?”, he asks, in the same Friday note. “Inequality does not go away by itself”.


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36 thoughts on “There Can Be No Change.

  1. So the conclusion we should all come to is that the political system has been manipulated into a tidy little corner much like the financial ‘markets’ to the benefit of a minority whom is favored by the outcomes and has the skill set to accomplish it’s goals… Generally true through history but not ironically…..

  2. Pro-capitalistic change is possible – corporations (of all sizes) could more evenly distribute equity grants and raise lower job level pay. Equity grant distribution modification could be GAAP neutral if the pie was simply sliced differently. Raising cash compensation will compress earning margins (unless earnings per employee improves). Forward thinking, worker friendly execs could potentially message that they are investing in their workers, raising retention, and increasing worker competency. The strategy would take more effort to grow earnings than financial engineering juice though…. are companies ready to chart a bold, responsible, humanistic path ?

  3. I do recall Marx was assuming that debt servitude would be the spark that ignites. There has yet to be a true Marxist revolution. I do not hope for such, but this clock only needs to be right once. A form of debt imprisonment due to medical bills has been springing up in different parts of the country. If the goldbugs and fiscal hawks get their desired outcome, who knows… I do not want to know.
    Save Capitalism now before it is too late. Wealth of Nations, not the Greedy Individual.

    1. You say “wealth of nations” but I doubt you’ve read it. If you had you’d know that every criticism Marx makes of capitalism is in there. Capitalism needs to die for us to live.

  4. Recently you castigated a commenter over his use of the term ” slow Joe”. And at the time I wanted to say that, while the term carries specific meaning ( that I am not fully informed about ) in the conservative community, it also resonates with the liberal community as a nagging realization that neither his candidacy nor his Presidency would be enough.
    Since ’87 there have been shocks to the financial system which went a long way to discourage retail (?) participation. To be sure you are laughing, “retail had no money to invest!. Granted. I remember times when it was impossible to MAKE an IRA contribution and the seeming absurdity of saving for the future. And yet…
    Had more people participated in the Market the United States would be in a fundamentally different position today.
    There are undoubtedly policies to pursue now that would lead to better outcomes. However we did not get here overnight.
    Please, if you object to this post, simply refuse it.

    1. I did not “castigate a reader over his use of the term ‘slow Joe'”. That is false.

      I admonished a reader for copy/pasting Trump’s Twitter feed “Sleepy Joe Biden”, a moniker that has nothing whatsoever to do with economics or the pace of policy change, but rather is something the president made up to describe Biden’s general demeanor and is thus totally irrelevant to any serious discussion about macroeconomics, and especially irrelevant to the post the comment was posted to which, if I recall, was related to Goldman’s discussion of return on equity.

  5. The problem with being unable to change the narrative, and with the continuing frustration of individuals taking to the streets, is that it may well put us closer to the time when our “boss” feels he has to take back the streets and Bible in hand, he calls his favorite general to support his takeover of the government. COVID will seem like the good old days.

    1. The narrative on the right represented by Trumps election was about stopping government handouts and promoting self dependance(?). A long journey, a long running grievance, rewarded with electoral victory. And yet as he try’s to deliver what they want they see a furious reaction which the thoughtful among them may recognize as… self dependance exhibeted by the other side. At any rate it must feel like the last gasp. It appears to be the last gasp.
      Maybe that is wrong
      Maybe Donald Trump represents racism.
      I want to believe that there are consequences for Presidential incompetence.
      ” There can be no change ”
      There has been change. We are here grappling with this moment because of change.

  6. I’m not at all sure that the Joint Chiefs will follow the Orange headed buffoon into hell even if he is holding a bible in each hand.

  7. Excellent read, the numbers you highlight portray a grim reality for many, is good to be reminded of that as a reader and as an investor, clearly the American experience means very different things for many in our nation. I realize a Biden presidency would most likely not translate into meaningful change for the less fortunate or for the 10% that Kudlow defends with such passion, but it would at least offer a glimmer of hope that we might yet someday bridge the gap.

  8. Some say that these charts point to a depression upcoming since the wealthy do not pay taxes the same as the poor. The result is the government goes essentially bankrupt and is unable to save the economy for rich or poor alike. However problem with this thesis is that it is impossible to know ahead when the ‘shit hits the fan’. We only know after it it is too late to do anything about it.

    1. The US government cannot “go bankrupt.” It can finance itself at any time, in any amount. The public absolutely has to stop believing these myths about the deficit etc., etc. I’m not saying we can just stop collecting taxes, but at a certain point, the refusal to admit what’s going on before your very eyes has to stop. The US government is “borrowing” more than $3 trillion to fund virus relief. The Fed’s balance sheet has expanded by roughly that amount over the exact same period. But it needn’t be the Fed buying it (at arm’s length, for now). It could be China. Or Europe. Or the Japanese. Etc. Etc. It makes no sense to say that the issuer of the world’s reserve currency can go “bankrupt.” We don’t even have to issue the debt if we don’t want to. That too is a myth. We can just keystroke dollars into existence. There is no obligation that the US government issue an interest-bearing version of its currency, which is all bills and bonds are. If you had a printer in your basement that printed real dollars (i.e., actual, real USDs, not fake ones) and somehow, you had a license to do that legally, would it make sense to say that you can go bankrupt? No, of course not. You could buy whatever you wanted in unlimited quantities forever because you have a license to print real dollars. Clearly, these are extreme examples to make a point, but it’s an important point nevertheless, and one that I certainly hope Americans better understand after the past two months.

      1. I appreciate that you are trying to help us remove from our thinking the mis-education we have been subjected to.

        However your statements assume we remain the worlds reserve currency. Certainly there are a few who would prefer if the mantle were passed.

        Is there a way to easily monitor the possibility we could lose reserve currency status? Or is it an occurrence so rare metrics are unknown? Or a change that moves so slowly that these changes when they are occur are imperceptible until the tipping point?

        1. It doesn’t depend on being “the” reserve currency. The same thing is true for the UK, Europe, Japan, etc.

          1. You also still seem to be a bit unwilling to accept the reality that the Fed is monetizing this debt – we are selling it to ourselves. I realize that’s hard to wrap your head around, but it’s the case. There’s a primary dealer middleman, but in essence, we are issuing trillions of debt and buying it from ourselves. That is how the virus relief is being funded. Of course, that makes little sense. Why even issue the debt in the first place if we’re just going to buy it from ourselves? The answer is: There is no good answer. Same as there is no good answer to this question: Why doesn’t Japan just cancel all the JGBs that the BoJ owns? I think people just steadfastly refuse to accept this because the reality of it means that none of this is “real” in any sense. Well, I’ve got some bad news for you… lol

          2. OK, that says it all for me. I have been concerned about USA losing reserve currency status. I understand monetization. I am just not fully up to speed on what comprises the economic situations that allow this versus the monetization which occurred in Europe prior to WWII with attendant disastrous political consequences.

          3. It seems MMT and modern economic theory would be a great topic for a rigorous online college course. Or if there is one already please, anyone, provide link.

          4. all is good for now but don’t delude yourself that eventually there won’t be very negative consequences

          5. Ah, yes. The old: “Hyperinflation will show up at some indeterminate future date” argument.

            The “smartest” folks in the financial universe told Ben Bernanke that in 2010 in an open letter published by the Wall Street Journal. Fast forward a decade and the Fed’s balance sheet is $7 trillion, and they have never even managed to consistently hit their inflation target, let alone witnessed hyperinflation.

          6. Old research pharmacologists have a saying, “You cannot statistically prove that dragons don’t exist”.

  9. Hi D Price: yield cuve steepening and DXY falling. Like last week. Also, US trade deficits going up and the USD reserves of surplus trade partners (China, Europe) going down. I understand too the need for my re-education on MMT, but the problem may be that the advent of MMT may require yet another re-education about balanced international trade. That adjustment would be longer and more difficult then creating central bank’s “new tools”.

    OK, I’ll admit not following the excellent H with this, unless the need for the US to seriously think how to balance trade, the hard part, is not tackled at the same time.

    1. I fear ‘balanced trade’ is a euphemism is for managing trade to benefit a particular subset at the disadvantage of everyone else. But at times I can be a cynic.

  10. At what point does it become politically impractical to continue widdening the wealth gap in order to keep zombies walking? And if it becomes politically popular not to, what will the loss of that significantly disinflationary force mean for the hyperinflation debate?

    I don’t see how cutting out the middlemen by way of mmt solves this as long as the purpose is the narrowing of credit spreads.

  11. There is a saying: ‘The reason truth is stranger than fiction is that fiction has to make sense.’ The reason Joe Biden can say ‘Nothing will change’ in a universe where almost everything changes all the time is that he is dealing with fiction, not fact. He is in a world that has floated away from physical reality. The stock market, for example, is largely fiction, driven by the creation of funny money — money which has no relation to labor or the value of goods and services which labor produces. It’s created by belief and force in service to that belief. The money does not even exist in the form of magical metallic disks or magical slips of paper with strange designs on them any more. The complexity of the financial belief system, and the urgency of the interests of the rich and powerful in it, are such that it cannot be changed, cannot turn, cannot bend. And that which does not bend will break.

    1. Nihilism has 2 final outcomes. One is a personal view that finds validity in nothingness. And the other is a form of negativism that lies to itself and justifies resentment. Just saying…

    2. I like your opening sentence. Have you read the Leopard? The main character has a nephew who says:”Everything must change for everything to remain the same.”

      1. Wow, didn’t think I’d run across that book on a message board, but the HR continues to surprise me. Great book and the quote is spot on in regard to our current situation. I might need to dust off an (electronic) copy of that and give it a re-read.

        Also, speaking of books from my college days, Ragtime is another one that is appropriate for the times.

  12. Michelle Gass and I are both white. She owns eight million dollars worth of Kohl’s stock. I have whatever change is in my couch and the little in the bank.

    So why am I being lumped in with her?

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