The Thinker

How the working class will be fleeced again

Stocks are up! Pundits (like me) were obviously wrong that Trump’s election would depress the stock market, at least in the short term. Trump’s threats of a trade war with China, dissing Lockheed Martin for its F-35 cost overruns and Boeing for bogus inflated costs to make the next Air Force One should have had the markets concerned. Boeing and Lockheed Martin have taken hits but overall the stock market keeps cranking up its share prices. By one measure, the S&P 500 is up 13.04% for the year, and 6.39% of the gain has been since the election.

Will these gains continue? In the short term it seems likely. Wall Street is betting that Republicans (who spent eight years trying to stop more federal spending) will agree to deficit spending for infrastructure initiatives that Trump has proposed. There are also those juicy tax cuts, principally for businesses. However, if Obamacare is repealed, the principle beneficiaries will be the rich, who won’t have to pay extra taxes to subsidize health care for the poor and middle class. (In case you were wondering, this is Republicans’ biggest grief with the ACA, not the mandate. They just won’t admit it.)

While this sucks for those who depend on Obamacare, all this should contribute to growth, at least until Trump starts his promised trade wars. What it won’t do is lower the deficit. In fact it will increase it. Most likely Republicans will lose their deficits-are-evil mantra again, at least until we have another Democratic president. Then of course it will become the most important thing in the world again. Lowering businesses taxes of course simply adds to shareholders’ bottom lines and thus share prices. This comes at the expense of depriving the government of revenue foisting yet more of the tax burden on individuals – well, except the rich, of course.

What this amounts to and what the stock market is telling us is that income inequality will increase again. To put it another way, the rich will get richer and the poor will get poorer. This should be very alarming because democracies are more vulnerable when income inequality is high. But in the short term those with money are likely to do better. Rising stock prices are a reaction to this anticipated future. Since Wall Street generally doesn’t look past the next quarter you can’t read too much into it for the long term.

For now, continuing rising U.S markets are not an unreasonable proposition. Trump is stuffing his cabinet with not just millionaires, but billionaires. His cabinet will be the richest ever. In fact, Trump’s proposed cabinet’s net wealth is equal to one third of the wealth of all American households. He thinks that wealth indicates not only success but also an ability to get things done.

Since Trump is picking people that are at odds with many of his stated goals (like bringing back manufacturing jobs in the United States) it’s likely that a lot of his campaign promises in these areas are simply bluster. I would not hold your breath for a wall on our southern border, for example and I would definitely not expect Mexico to pay for it. I do expect that the working class that voted for him will be disappointed where it counts: in the pocketbook. Here’s why:

  • Blue-collar jobs that pay decent wages aren’t coming back – at least not in the volume our parents knew them, and they likely won’t be union jobs or with pensions. Even Trump knows this. The robotics revolution will continue meaning those manufacturing jobs that are created in the United States will be relatively few and those that get them will need higher skills.
  • Despite a “hydrocarbon heavy” cabinet, fossil fuels won’t be making a resurgence either. It’s cheaper to get hydrocarbons through fracking than through coal mining and a fracking well largely runs itself. But there are other reasons. Generating energy through solar power is now as cheap as fossil fuels, and it should get cheaper. Trump of course could be promoting these green technologies. Putting solar panels on all the roofs in this nation could keep hundreds of thousands of blue-collar employees employed and productive for decades, while helping the environment. But don’t hold your breath on this one (pun intended).
  • Trump is hostile to increases in the minimum wage, and his Labor department secretary would prefer no minimum wage.
  • As the stock market demonstrates, to build wealth you must save and invest. If you are not seeing wage growth, you probably won’t be able to save or invest much so you likely won’t be building wealth.
  • Removing subsidies for health care will move the costs of health care on those least able to afford to pay them. If there is no mandate to have health insurance, of course those opting out save money in the short term. But it will likely be wiped out when a serious illness occurs. Not only will the uninsured be asked to pay the costs of getting well, they will be paying a list price instead of discounts that the insured get.
  • If Trump and Republicans are further successful in reducing Medicare and Social Security benefits, they will disproportionately affect those with fewer assets and depend on these safety nets. Their reduced incomes will also depress the economy.
  • If welfare and food stamps are cut back, people will eat less, starve or eat cheaper and unhealthy food. This increases the risk of health issues and shorter lifespans.

So what’s really going on on Wall Street is a “party while you can” mentality. Those partying have every reason to party, since they will be sucking yet more money from those least available to provide it. Like all parties this one will end and probably sooner rather than later. Those whose wealth is being tapped are already mostly tapped out, which means there is no source of sustainable growth for the economy.

Smart partiers should realize this and turn their profitable assets into fixed income while they can. The smartest partiers will realize all this is counterproductive and that real growth depends on lifting everyone, and work to make this a reality. As for the working class, don’t be a fool and think that a new administration is going to save you. They’ll do their best to save those who they really care about: the wealthy.

 

2 Responses to “How the working class will be fleeced again”

  1. 7:41 am on December 19 2016, Jay Jones said:

    Reading this blog entry and a few others you posted recently takes me back decades to discussions you and I had decades ago on “Back of the North Wind” and other pre-internet bulletin boards. The issues may be different but your enlightened, nuanced and progressive view of them have remain on point. You can expect me to become a regular reader.

  2. 9:37 am on December 19 2016, Mark said:

    Thanks for visiting, Jay. While not the same as having a forum, the blog at least gives me the ability to have my say, post my random musings while not having to deal with the flack that you get on a forum. Keep reading!

Leave a Reply

Switch to our mobile site