economy Markets

Quarantinis (And A Glimpse Into Our Not-So-Distant Future)

“I actually agree with this”, Donald Trump said over the weekend, referencing a video from Business Insider which showed the fortunes of the richest people on the planet rising during the worst public health crisis in a century, even as tens of millions of Americans lost jobs and small businesses closed their doors forever.

While 40 million Americans filed for unemployment during the coronavirus pandemic, billionaires saw their net worth increase by half a trillion dollars”, the video claims. 

The accuracy of the latter figure (half a trillion) isn’t all that important. It depends on who you include, whether you want to limit your list to US citizens, how you date the pandemic, and so on. Simply taking a look at the YTD change in the fortunes of the top 10 people on Bloomberg’s billionaires list shows that, on net, they are almost $143 billion richer now than they were when the calendar flipped. Jeff Bezos singlehandedly accounts for more than half of that gain.

It goes without saying that Trump likely isn’t interested in addressing income inequality. Part of the president’s disdain for the video he referenced while feigning interest in the wealth divide is doubtlessly attributable to the starring role played by Bezos, who Trump has variously threatened over unfavorable coverage in The Washington Post, among other transgressions. Additionally, it’s not a stretch to suggest that Trump is perturbed at being excluded from the discussion because his own wealth isn’t large enough to qualify. He is not on Bloomberg’s billionaires list, which starts with Bezos’s $190 billion fortune and goes all the way down the ladder to include relative paupers like Bob Kraft, who occupies the 494 spot, with a lowly $4.5 billion.

“Too much income disparity. Changes must be made, and soon!”, Trump exclaimed, in a Saturday tweet. He might start by repealing his own tax cuts. They overwhelmingly benefited the wealthy and large corporations, which in many cases used the windfall to buy back shares, and in some instances did so while laying off workers.

In any case, the catch-22 is that some of the people who have benefited the most financially during the pandemic did so in part because the services they created helped facilitate work-from- home arrangements and, in Bezos’s case, helped ensure that goods continued to flow to households when supply chains were breaking down and signs of shortages were showing up at grocery stores. In all likelihood, the lockdowns would have been much worse economically had it not been for the likes of Google, Microsoft, Amazon, and, to a lesser extent, Facebook.

And yet, for many low- and middle-income Americans, working from home isn’t an option. “It is easier to be physically distant if you can remain professionally engaged”, Brookings wrote, at the onset of the pandemic. “But of course, the capacity to work from home is highly dependent on your occupation”, the think tank added, noting that “among those who are employed, there are large gaps by income in those reporting that they have worked from home, compared to those who have stayed at home but been unable to work”. The figure (below) shows the disparity.

On top of that, it was more difficult for lower- and middle-income Americans to stock up as the lockdowns were put in place. After all, “you need money to be a hoarder”, as Brookings put it at the time.

The same sample used for the visual above showed that when asked whether they had “stocked up on food, medical supplies, or cleaning supplies”, just 43% of those making less than $24,000/year and only 49% of those making between $24,000 and $47,000, said they were, while nearly two-thirds of those making $180,000 or more answered “yes”.

Fast forward four months, and nearly 30 million people in the world’s richest country indicated they didn’t have enough to eat last week, according to the Census Bureau’s Household Pulse Survey.

Although it’s rarely the case that the rich don’t have an advantage over the less affluent in a crisis, the nature of the pandemic has amplified the divide by working on both sides of the wealth gap.

That is, it’s increased the value of the companies which have facilitated virtual interaction and the delivery of goods and services to doorsteps, while simultaneously posing an existential threat to the industries where lower- and middle-income people are most likely to work, which also happen to be the sectors least amenable to work-from-home arrangements.

Not only that, lower-income groups are more exposed to scenarios in which taking a leave of absence or a paid holiday might be the difference between life and death. The figure (below) shows the percent of private industry workers with access to paid sick leave, vacation, and holidays, by wage category, last year.

To be clear, Donald Trump is correct. “Changes must be made, and soon!”

What I think is underappreciated by most people (and especially by those whose net worth lands them somewhere between, say, $10 million and the bottom-end of Bloomberg’s billionaires list, which starts at around $4.5 billion) is that subdued growth almost invariably leads to exponentially widening wealth gaps, as long as the return on capital outstrips the rate of economic expansion.

If you’ve even skimmed Piketty, you know where the world is probably headed.

Wealth will become more and more concentrated among a smaller and smaller group of people. For now, the Bloomberg billionaires list looks like a continuum, but the phenomenon playing out at the very top should serve as a warning. The gap between Jeff Bezos (#1) and Bill Gates (#2) is ~$70 billion. The gap between Jeff Bezos and Dieter Schwartz (#50) is more than $160 billion. In other words, the disparity between the net worth of the richest person in the world and the 50th richest person in the world is equivalent to 25 Ralph Laurens (he occupies the #307 slot on the list).

This is quite possibly a crisis more pressing (and note that “pressing” is something different from “consequential”, as the former conveys the urgency of the problem, while the latter speaks to how existential a given crisis is) than any other humanity currently faces.

It’s not that wealth concentration is inherently “bad” or “immoral”, it’s just that it’s hard to see how a world where five (or even 20) people control enough wealth to personally swallow entire sectors of advanced economies, is sustainable for longer than a few years.

People like Jamie Dimon (just to toss out the highest profile example I can think of) are going to become wholly irrelevant. Bank of America ended the second quarter with a record $1.7 trillion in deposits. Comparing that figure to Bezos’s net worth (which is obviously not just a giant pile of physical cash) is apples to oranges. But as dubious as such a comparison is, it serves a purpose — namely to suggest that within a half decade, the richest people on the planet may control more liquid assets (stocks aren’t cash, but they are generally liquid) than the largest banks have in deposits.

It’s no longer clear that even the likes of Bernie Sanders appreciate the scope of this crisis. Nor is it clear how it gets “fixed”. What is clear, though, is that it’s not sustainable — not even for a short time period.

If the prototypical “peasant revolt” doesn’t put an end to it, then you might well see a kind of uprising from the old school robber baron class, as traditional industrialists, bankers, and other business titans move to prevent a scenario where Elon Musk gets too high during a podcast and decides to buy Goldman Sachs on a whim. I’m joking — but only a little.

We’re still years away from that kind of future, but it’s surely closer to materializing than the climate apocalypse. That’s not to downplay the latter. It’s just to say that wealth multiplies exponentially. Two Mondays ago, for example, Bezos made $13 billion in six hours.

Coming back to the present day from our not-so-distant future, the reality in the here and now is that America has essentially collapsed societally under the weight of the pandemic. And that’s in no small part due to the wealth divide.

“People with money are likely to find it easier to put distance between themselves and others”, Brookings wrote in March, adding that “they can do their work at home, connect to colleagues and friends via Zoom, and hold online happy hours with their ‘quarantinis'”.


8 comments on “Quarantinis (And A Glimpse Into Our Not-So-Distant Future)

  1. joesailboat says:

    This is capatilistic end game,”efficiency”. The carnivores will eat one another to the end. Everything extinctes.

  2. ebogan13 says:

    Zuckerberg is an easy (and constant) target, and you of course caveated the inclusion of Facebook’s societal value during the pandemic, but I feel compelled to call out his massive financial gain here as hyper-parasitic given what trends the most on his platform of late. It is overwhelmingly the part of the conversation that is increasing our particular national problem with coronavirus, not helping to mitigate and/or end it. Yes the connectivity people enjoy through Facebook and other platforms matters psychologically. Without question. It’s not all bad. But the bad is… well… really f’ing bad.

    • Yeah, my personal opinion is that Facebook has virtually no social utility compared to Google, Amazon, and Twitter. Twitter at least serves as a real-time news feed and Dorsey is obviously interested in making it a better place even if it’s an impossible task. I have no idea whether self-preservation was a factor in Facebook’s acquisition of Instagram and WhatsApp, but I think, over time, Facebook itself will become the least valuable property that Facebook owns.

    • kilo says:

      Zuckerberg, for me at least, is particularly loathesome (admittedly, I have a general predisposition to despise unproductive wealth, so understand that what follows is negatively biased). He owns 750 acres on Kauai and sued native Hawaiians that owned land close to his estate in order to force them to sell their property.

      He claims to have dropped the suits, but it appears it’s still an ongoing issue.

      Having been lucky enough to have spent considerable time on Kauai, I can say that the last thing that island needs is Mark Zuckerberg buying excessive amounts of land and squeezing out even more native Hawaiians.

      The rich are immune to social unrest right up until the exact moment that they’re not.

  3. PJSPHD says:

    Perhaps nothing says inequality or portrays GOP concern for lower wage earners like the proposal to increase business deductions for meals.

    Who could argue when they mean larger tips for the wait staff? Trickle down at its best.

    Very thoughtful.

  4. MMcCann says:

    A lot of this wealth disparity is tied to paper-wealth or appraised-wealth that generates relatively little net cash flow vs. the value and there is virtually no cost to let it sit (and watch it appreciate in a world of very low/declining interest rates, particularly if it’s a “growth” asset). And when these asset holders sell, they’re likely paying lower “capital gains” tax rate vs. regular income tax rates.

    One solution to address this disparity would be a national annual nominal valuation tax on all non-cash/non-money market assets (sure, it would be complex to assign values to all private assets outside of perhaps real estate, but think of all the jobs this appraisal task would create) offset by any local taxes paid on such assets (so in effect, real estate would not be taxed twice on value).

    If asset holders (including pension funds and 401Ks, as these assets are part of the wealth disparity) now had to pay an annual assessment of, say, 0.5% to 1.0% of valuation) I suspect the paper wealth gap would be narrowed substantially (and rapidly). Those assets paying their owners little (and for which current value is tied to growth) would likely experience both a decline in investor demand (and therefore value) as well as increased marginal selling to pay the annual tax (on unsold holdings). With this, I suspect the net worth of both Jeff Bezos and Elon Musk would come down a little from the stratosphere.

    For stocks, dividends would grow in importance (from which the annual valuation tax would be paid) and stock buybacks would likely decline.

  5. Anonymous says:

    Remember to look at operating income, FCF normalized with replacement capex not total and then think about a different tax rate. AMZN has a lot of future growth embedded in the stock price. In a decade we will see where the mkt cap is. Might surprise in a strange way. Wouldn’t be the first time in history. I am amazed everyone seems to believe the past will be the future. A fait accompli.

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