The rich are getting richer and the middle class is on thin ice. The top 10% owns 70% of all US wealth. Studies from the FED show that the top percenters have not grown their wealth by cutting liabilities but by simply owning and controlling more assets. Real estate and stocks are the top asset classes that have widened the wealth gap to these extremes. Is wealth and income inequality, found in capitalistic societies fair? Everyone has the chance to chase the American dream and create the life they want. Because we live in a free enterprise capitalist society income and wealth inequality is technically fair, but is it healthy or harmful?
While playing a game of monopoly with my daughter on the Xbox OneX the other day, it got me thinking about the economy. Although I won that game it was full of trials and took about 3 hours to complete. I had many setbacks from paying fees, not being able to collect while others were, and going to jail which reminds me of the trials some of us face today. The game changer happened when one player didn’t have enough money to pay the fees for landing on my property. He had to file bankruptcy which transferred all his money and properties into my possession. The redistribution of wealth pushed me to victory while the rest lost. I exploited the system several times to transfer money to my daughter, but her lack of assets ultimately caused her bankruptcy. The key to winning monopoly is owning the most assets. I’ve played monopoly for many years and have just recently learned this blueprint to winning. The same is true for real life.
As a student of the financial markets and economic cycles I have noticed that we are at the top of this bull cycle and when the bubble burst there will be many that will be negatively impacted. However, there will be some that will be virtually unaffected, The top 10%. Wealth gaps widen in bubbles and that’s a part of the normal economic cycle.
Capitalism is a system that rewards and punishes based on behaviors much like in grade school. For example, if you study more than the rest and complete all of your assignments, and show up every day then you will earn your A. Contrastly, the class clown that skips class, does not study and stays in detention will ultimately earn their F.
In a socialist society everyone gets a C, no matter their efforts everyone is equal, but how is that fair? It’s not! Why should I be punished when I outworked the rest? That’s why I believe capitalism is a fair system because you can literally go from rags to riches. There are over 10.2 million households with over $1 million net worth in the US. We see people flocking to this nation every day to get their piece of the pie. As long as “opportunity” exists then anyone can achieve their dreams, but the system is not designed for everyone to win. There has to be winners and losers. The fact that there are prized trophy winners (the top 10%) encourages those at the bottom to work smarter and harder with the hopes they too will one day get to the top.
Companies typically make a spectacle of top performers with the hope that everyone else will strive to be like them. This inequality promotes productivity and competitiveness which drives smart hard workers from the grasps of poverty while pushing the economy forward. Most people aspire to be at the top, but the reality is that many will never make it because building wealth is more complicated than just working hard and following the rules.
One of the main problems is that most of us don’t understand how capitalism works and how to leverage the rules of this game to our advantage. Even worse, what if by the time you learned the rules of the game the system evolved into a state where those rules are no longer applicable? This is a likely future due to current business practices and can result in negative impacts on the economy and society as a whole. I believe that capitalism varies in degrees of healthiness to harmfulness. The goal should be to maintain healthy capitalism so that it works for the benefit of everyone.
To solve for the future we have to first review the past. The Great Recession of 2008 took a huge blow on Americas Middle Class. Lots of homes and jobs were lost pushing middle class families further into poverty. The top percenters were unaffected. In fact, the top percenters acquired many more assets after the middle class was pummeled, much like in the game of Monopoly. Furthermore, the FED pushed the interest rates down, started printing money, and buying assets to jump start the economy. This allowed the assets that the rich acquired in the recession to appreciate exponentially causing the wealth gap to widen even further.
The S&P 500 has risen over 340% since it’s recovery over the past 10 years and real estate is more expensive than ever. Shareholders have profited greatly, which is why it has become my mission to educate the everyday person on how to generate income and build wealth with the stock market.
In a free enterprise capitalist society, it’s not a problem for people to get rich. In Fact, that is to be encouraged. The problem is when the middle-class wages stagnate or fall. They then become victim of the debt cycle and slip into the poverty zones. When the majority can’t get a piece, that is an indication that the system no longer works, and this is the grave danger ahead. How did we get there you say? Here’s how.
When a system has glitches, and everyone exploits that glitch it creates imbalances that can destroy the system if not addressed. The main culprits are Globalization, Technology, Short term shareholder profit driving corporate culture, and Fed monetary policy.
CEOs are at the mercy of shareholders and are too afraid to take a portion of the 91% of profits they pay to shareholders to pay higher living wages to their employees. Paying employees an increased wage will bring long term value but corporations are obsessed with short term gains. When incomes are not enough to fight off inflation and debt then workers get disgruntled, leave or revolt.
This culture of “return more and more profits to shareholders” has CEOs by the balls. They strive to figure out faster ways to generate profits by firing US employees, shutting down US operations, and shipping them overseas for cheaper operation costs. Corporations can deliver cheaper products to US consumers at the sacrifice of US jobs. This globalization is what lead Donald Trump to become the 45th President of the US.
Technology is also disrupting massive jobs. When one tribe has guns and the rest have spears the race to get more guns becomes the driving force of survival or death is imminent. Artificial intelligence is the new gun of this 4th industrial revolution. Corporations can bring more profits to shareholders by deploying artificial intelligence which allows them to cut human labor and be more efficient.
Tax policy is one of the main factors that is allowing blockbuster corporate earnings. Instead of reinvesting those savings into the workers the corporations are paying record breaking salaries to CEOs and record-breaking share buybacks to increase the bottom line of shareholders. CEOs are making over 300 times more than the average employee while bouncing from firm to firm. Their tenure is short lived before they move to the next company to rinse and repeat.
Lastly, after the recession, the FED monetary policy has artificially boosted asset prices that are mainly owned and controlled by the top percenters. When you look at the whole wealth inequality argument from a wider view you can easily see that we need to resolve the system flaws so that it works for the majority.
What can you do to fend off this gloomy outcome? I’m glad you asked. Low-skilled jobs are at risk of being cut by artificial intelligence and globalization. If you want to stay in the game and enhance your income then you will have to shift your focus to learning high paying skills. From there you can start a business or get a high gross career that will earn you enough money to acquire assets like stocks and real estate to build generational wealth. This means that education is the biggest controllable variable that can change your life.
The traditional 4-year degree is no longer necessary to learn high paying skills thanks to the internet. For example, Wallstreet Jackboyz specializes in a down to earth, clear path approach to learning how to make money in the stock market at www.wallstreetjackboyz.com. Great online courses can be found in places such as Udacity and Coursera (no this is not a sponsored post..lol) A simple google search is a great place to get started on building the skills needed to close the gap. There is so much research that goes into the wealth inequality argument that I encourage you all to learn more. This will be a core topic during this election cycle. Make sure that you add your voice and engage in the discussion.
Happy trading Wallstreet Jackboyz and Girls.