NY Times on middle class

The Recovery Threw the Middle-Class Dream Under a Benz https://nyti.ms/2Na9wly

"Wealth, real wealth, now comes from investment portfolios, not salaries."

This should be more obvious. It's a feature of the system that central banks will slow down economic growth when inflation surpasses 2%, which wages will almost certainly not surpass.

"The financial crisis... put an end to a fundamental belief of the middle class: that owning a home was always a good idea because prices moved in only one direction — up."

I strongly wish this were the case. I've seen way too many bright educated people discuss homeownership like its a no-brainer.

"the typical middle-class family’s net worth is still more than $40,000 below where it was in 2007, according to the Federal Reserve"

3 weeks ago we broke the record for longest S&P 500 bull run. Which is a 320 percent increase since March 2009 (link). Even just the last 10 years, including the thick of the crisis, returned 11% per year.

"Maybe it was inevitable that when half the population watches its wages stagnate while the other half gets rich in the market, the result is President Donald Trump and Brexit."

This makes me think of Kolanovic's latest prognostication that the next crisis will bear social unrest the likes of which we haven't seen since the Great Depression. Sounds a lot like this last crisis. link

"Society, Mr. Piketty wrote, risks a return to the historical norm of a yawning gap between rich and poor. Whether or not he is right, the concentration of wealth that is a legacy of the financial crisis will make itself felt far into the future. Younger Americans, in particular, will be marked by the experience of 2008 much as the Crash of 1929 and the Great Depression haunted the generations who lived through it in the last century. Not only were they unable to accumulate assets in the lean years of the early recovery, but they also missed out on the recent stock market rally that benefited their older and richer peers."

While the wealthy may have benefitted  from the post Great Depression bull run, there are stark differences to today's experience. The Great Depression saw an 80% drop from peak to trough, which took 25 years to recover from, in nominal price terms, or 4.5-7 years including dividends and deflation (link, link). The Great Recession saw a drop of only 54% from peak to trough (link), which was then followed by a massive bull run that has yet to stop.

The biggest difference is the resulting massive reorganization of the economy, which saw Roosevelt's New Deal introduce policies that massively benefitted the lower and middle classes, including public works, financial reforms, and the introduction of social security. The comparison to the government reaction this time around is laughable, with the current US administration already falling over itself to repeal regulations, with only Obamacare directly benefitting a larger population, and  economic policy largely responsible for the massive inflation in asset prices.

I hope Mr. Piketty's risk of "return to the historical norm of a yawning gap between rich and poor" isn't borne out, but I fear without massive government intervention, it will be.

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