One last rant before we get back to business after the long weekend. Sitting here Sunday morning with coffee and iPad in hand (if anyone else has had wi-fi issues with an iPad mini, PLEASE let me know) and came across a number of free digital issues of various publications. I don’t subscribe to the New Yorker regularly but have enjoyed the occasional read at the dentist office and thought this was a natural follow-up to yesterday’s rant:
Irony is cheap, not painless. One well-established fact is that polarization in Congress maps onto one measure better than any other: economic inequality. The smaller the gap between rich and poor, the more moderate our politicians; the greater the gap, the greater the disagreement between liberals and conservatives. The greater the disagreement between liberals and conservatives, the less Congress is able to get done,; the less Congress gets done, the greater the gap between rich and poor. That’s not bad math. That’s what happens when the kitchen’s on fire and all you’ve got is matches.
The kitchen is on fire, but Congress is only partly to blame as we see it. Money debasement comes with all sorts of nasty unintended consequences, not the least of which is social disorder. History provides plenty of examples where currency debasement unraveled the social fabric of society: the collapse of the Roman Empire or the fall of the French Republic, and of course, Weimar Germany. Coming back to Keynes, and his now well-known comments on the resulting “continuing process of inflation” – artificially created money redistributes wealth towards those closest to it, to the detriment of those furthest away.
It is no coincidence that median household incomes have remained stagnant for the better part of two decades while inequality has surged; that a record number of Americans are on food stamps, while the top earners take home a larger piece of the pie than anytime since the 1920s credit inflation. Dylan Grice has summed this up quite well in the past. “The 99% blame the 1%, the 1% blame the 47%, the private sector blames the public sector, the public sector returns the sentiment … the young blame the old, everyone blame the rich … yet few question the ideas behind government or central banks …”
Starting tomorrow, we’ll spend more time considering how to generate returns in this environment and less time pointing fingers. Enjoy the rest of your Sunday and what’s left of this year’s monster rally. We don’t think it will be repeated when the calendar turns.