Trevor Noren, managing director at 13D Global Research and Strategy, discusses how the concentration of wealth and corporate power is shaping his macro perspective. He sees the past three decades of industry consolidation as root causes of the problems that the American economy currently faces: stagnant growth, increasing wealth inequality, and a QEdependent stock market. Noren predicts that this trend of consolidation will reverse, and he sees significant investment potential in gold, small cap stocks, and companies leading the decentralization movement. Filmed September 26, 2019 in New York.
WASHINGTON (Reuters) – U.S. President Donald Trump rolled out an eye-catching statistic in his State of the Union address Tuesday: the wealth held by the poorest half of American households increased three times as fast as the wealth held by the “1%” since he became president.
That’s true, according to Federal Reserve data.
On average, Americans have seen a 17% jump in household wealth since Trump’s election, while wealth at the bottom half has increased 54%.
“This is a blue collar boom,” Trump also said Tuesday. That’s less apparent. The biggest winners on a dollar basis were a familiar group – whites, college graduates, and people born during the “baby boom” between 1946 and 1964.
Since December 2016, President Barack Obama’s last full month in office, aggregate household wealth has increased by $15.8 trillion, but the vast majority went to groups that have tended to accumulate wealth in the past.
Even with a 54% increase in their household wealth under Trump, the poorest half of American households, around 64 million families, still have just 1.6% of household “net worth.”
HALF OF AMERICA
Net worth combines the value of assets like real estate and stocks and subtracts liabilities like mortgage loans and credit card balances.
Because America’s bottom 50% are starting from such a small base, given the enormous disparities in wealth in the United States, even large moves in their fortunes do little to dent the overall distribution. In dollar terms as of the end of September 2019, that latest data available from the Fed, the combined net worth of the poorest half of families was $1.67 trillion out of total U.S. household wealth of $107 trillion.
Here is what the Fed’s Distributional Financial Accounts have to say:
Historically, 17% growth in household wealth over 11 three-month “quarters,” or nearly three years, is pretty standard. There have been 110 such periods since the Fed’s data series begins in mid-1989, and the most recent ranks 55th, squarely in the middle.
On a quarterly basis, compound growth in household wealth since 1989 has averaged 1.39%. Under Trump it is slightly less, at 1.34%.
The bottom half of households saw their net worth rise by 54% under Trump, from $1.08 trillion to $1.67 trillion. That’s compared to an 18% rise for the top 1%, who control roughly a third of the total household wealth in America, or around $34.5 trillion.
Even after those gains, that works out to average net worth of around $26,000 for the bottom half of households versus around $27 million for the ones at the top.
Much of that increase among the bottom half was due to increases in real estate, not stocks, after a resurgence in home ownership rates that began in 2016.
Wages for lower-skilled jobs have of late been rising faster than those for higher-skilled occupations. January non-farm payrolls data show a bigger-than-expected jump in overall employment, bolstered by an increase in construction jobs.
But it takes time for income to be saved and translate into wealth. Since Trump took office, households headed by a college graduate captured 75% of the net worth gains, or around $11.88 trillion.
They represent about a third of all households, according to the Fed survey on which the data series is based.
Overall, households headed by a high school graduate, a group on the front lines of Trump’s pledge to restore blue collar fortunes, lost $0.4 trillion in net worth during his time in office. Those households represent about a fourth of the total.
A BABY BOOMER BOOM
Generationally, households with a head born from 1946 to 1964 did not get fooled again, as the 1971 rock anthem pledged. The title of Trump’s speech was “The Great American Comeback.” It could just as easily have been “OK Boomer, What About the Rest of Us?”
Baby boomers under Trump, himself a member of that generation, captured around $10 trillion of recent wealth gains, or about two-thirds of the total.
The Fed survey’s demographic estimates are as of 2016, and the population would have changed slightly since then. In 2016 about 36% of household heads (in the case of mixed-sex couples the Fed considers the man to be the head, in same-sex couples it is the oldest of the two) were headed by a member of the baby boom.
Wealth accumulates with time, and older people would tend to have a larger base to start with. But for millennials, those born between 1981 and 1996, the last three years of booming markets have meant an extra half trillion dollars only, spread across about 20.6% of households. GenX’ers, born between 1965 and 1980, got about 21% of the gains, and made up roughly 26% of households. The pre-baby boom “Silent Generation” got 16% of the gains, roughly in line with that group’s share of households.
Analyzed by race, the data told a familiar story of inequality. About 84% of recent wealth gains accrued to the 64% of households that self-identified to the Fed as white.
About 4.6% of wealth gains went to the 14.5% of households that identified as black, and 3.8% to the 10.1% of households that identified as Hispanic.
(Graphic: Household wealth under trump, here)
(Graphic: A boom or the norm? here)
Reporting by Howard Schneider; Editing by Heather Timmons, Andrea Ricci and Chizu NomiyamaOur Standards:The Thomson Reuters Trust Principles.PAID PROMOTIONAL LINKSPromoted by Dianomi
The European Union’s new leadership has decided to invest much of its political capital in a plan to position Europe as the global leader in the transition to a carbon-neutral economy. But if too many constituencies feel as though they are being sacrificed on a green alter, the plan will never even get off the ground.
BERLIN – European Commission President Ursula von der Leyen’s ambition to lead a “geopolitical commission” is about to face its first big test. European heads of state are meeting to discuss her proposed European Green Deal, a sweeping project that could either unite the European Union and strengthen its position on the world stage, or generate a new intra-European political cleavage that leaves the bloc fractured and vulnerable.
The need for concerted action is clear. The Green Deal is a response to accelerating climate change, which poses an existential threat not just to Europe but to the entire planet. The problem does not observe national borders, and thus requires collective global action. But the transition to a carbon-neutral economy also offers far-reaching opportunities. With the right strategy in place, Europe can boost its own technological innovation and deploy carbon pricing and other fiscal policies to protect European labor markets from being undercut by lower-cost production in China and elsewhere.
Moreover, through the European Investment Bank, the EU already has a tool for mobilizing massive stores of capital for investments in infrastructure, research and development, and other essential areas. And, as Adam Tooze has argued, by issuing green bonds and other “safe assets,” Europe can secure greater economic independence from other powers and start to establish the euro as a global currency.
But alongside this positive vision are more dystopian scenarios in which the climate-policy debate creates geographic and socioeconomic divisions and fuels a populist backlash. Although climate change touches everyone, its effects are asymmetric, as are the costs of undertaking a transition to a carbon-neutral economy. The danger for Europeans is that the unequal distribution of the costs and opportunities will fuel a culture war between
- east and west,
- urban and rural, and so forth.
This European debate is an echo of a broader global challenge. Many Eastern European countries still depend heavily on coal for energy generation, and thus fear that the push for carbon neutrality is an underhanded form of protectionism by advanced economies like Germany. Poland’s energy minister, Krzysztof Tchórzewski, has dismissed as “a fantasy” the notion that Poland – which relies on coal for 80% of its electricity – could achieve carbon neutrality by 2050, and estimates that the costs of such a transition would approach €1 trillion ($1.1 trillion).
But, in addition to the east-west divide, the Green Deal could also create political rifts within every EU member state. French President Emmanuel Macron has tried to position France as a global climate leader. But his government’s attempt to raise taxes on fuel last year backfired when millions of gilets jaunes (“yellow vests”) took to the streets in protest in late 2018.
The European Council on Foreign Relations has conducted in-depth polling to understand policy preferences across Europe, and we have found climate policy to be a particularly divisive issue. On the surface, around two-thirds of Europeans in most countries polled think that tackling climate change should be a priority, even if it means curtailing economic growth. But up to one in four people do not think that climate change is a real threat, and are far more worried about Islamic radicalism and the rise of nationalism.
The gilets jaunes are not an isolated phenomenon. Recent elections have shown how a program like the Green Deal could become a useful punching bag for populists and parties like the Alternative für Deutschland (AfD) in Germany and Rassemblement National (National Rally, formerly the National Front) in France.
Critically, once you move from asking people whether climate change is a problem to how it should be addressed, concerns about socioeconomic fairness and the distribution of costs prove hugely divisive. Even in the European Parliament, where 62% of MEPs were elected on green-inspired platforms, only 56% agree that the EU should be pursuing a rapid transition to a low-emissions economy. Moreover, only one-third of MEPs are prepared to take tough action against companies with large carbon footprints.
Generally speaking, then, there are two possible futures for European climate policy. The Green Deal could become Europe’s chief new cause, lending momentum to European integration and strengthening the EU’s global position vis-à-vis China and the United States. Or, it could become the next “refugee crisis,” a singularly potent issue that divides Europe between east and west, and that mobilizes populist forces within countries across the bloc.
To make the first scenario more likely, EU leaders need to listen less to moralists like the young climate activist Greta Thunberg, and more to pragmatic realists who understand that paying off reactionary forces has long been part of the price of progress. The only way to shepherd the Green Deal to successful implementation will be to offer large fiscal transfers to the laggards, so that they, too, will have a stake in the clean-energy transition. Without European unity, there can be no effective European response to climate change.
The decisive Conservative victory in Britain leaves no doubt that in today’s global equation, national interests are supreme and globalization is suspect.
The notion that global economic integration amounts to human progress had a good run, dominating the thinking of the powers that be for more than seven decades. But a new era is underway in which national interests take primacy over collective concerns, with trading arrangements negotiated among individual countries.
Britain’s voters made that clear on Thursday in handing an emphatic majority to Prime Minister Boris Johnson and his Conservative Party, all but ensuring that the world’s fifth-largest economy — and a charter member of the international trading system — will proceed with its abandonment of the European Union.
A preliminary deal hailed on Friday by the two largest economies, the United States and China, raised the prospect of easing their high-stakes trade animosities. But the nature of their engagement — country to country, not mediated by the World Trade Organization or some other international authority — underscored the principles of the new age.
Britain now faces another complex phase in its tangled European divorce proceedings — negotiations over the terms of its future economic relationship with the Continent. But in one form or another, “getting Brexit done,” the mantra that Mr. Johnson promised and can now deliver, marks a profound change in the world trading system.
In the aftermath of World War II, the victorious Allies built an international order on the understanding that when countries swap goods they become less inclined to trade artillery volleys.
Britain’s departure from the European Union is the clearest manifestation that this idea no longer holds decisive sway. It is not the only one.
The traditional arbiter of international trade disputes, the World Trade Organization, is listing toward irrelevance as countries bypass its channels to impose tariffs. Its appellate body, which adjudicates disputes, has been rendered inoperative by the Trump administration’s blocking of new judges. The panel needs at least three judges to render verdicts, but now has only one.
“The sense that policy moves in one direction, toward more liberalization and more integration, has been replaced by recognition that policy can go backward as well as forward,” said Brad Setser, a senior fellow at the Council on Foreign Relations in New York.
The United States and China together account for more than a third of the global economy, making their wave of escalating tariffs a cause for alarm about diminishing fortunes in nearly every country exposed to international trade — from Germany to South Korea to Mexico.
President Trump has put stock in the unrivaled scale of the American economy in seeking favorable trading arrangements. In his calculus, the United States boasts the advantage in any bilateral trade negotiations and can tilt the rules toward American interests.
This was the logic that prompted Mr. Trump to renounce American participation in the Trans-Pacific Partnership, a trade bloc spanning a dozen countries. It was a project pursued by his immediate predecessor, President Barack Obama, in part to press China to address longstanding complaints that it subsidized key industries, doled out credit to favored companies and manipulated the value of its currency to gain advantage in world markets.
In taking on China, the Obama administration employed the multilateralist mind-set that had guided American policy since the end of World War II. The Pacific trading bloc would set rules on investment, labor and environmental standards. Its members would profit through growing trade, and China would want in. To gain access, China would be forced to adopt the bloc’s rules.
But in Trumpian thinking, multilateralism is for suckers. Shortly after he was sworn in, declaring as his credo “America First,” Mr. Trump ditched the Pacific bloc and weaponized the American market: If China wanted access to the 327 million consumers in the richest country on earth, it would have to buy more American goods and play fair.
On Friday, Mr. Trump cited the preliminary agreement as evidence that his strategy was working. The United States would sharply reduce the tariffs it had affixed to Chinese goods, while China promised to buy more American farm products and respect intellectual property. Mr. Trump called it “an amazing deal for all.”
But economists said the announcement of new farm purchases reflected goods that China was already buying. Even as the scrapping of the next wave of tariffs weighed as positive for the global economy, few were proclaiming the advent of enduring peace. The United States and China have descended into such an adversarial state that they are likely to continue seeking alternatives to exchanging goods and investment. Companies that make goods in China will face pressure to explore other countries, posing disruption to the global supply chain.
China’s leaders have come to construe trade hostilities as part of an American bullying campaign engineered to suppress their national aspirations and deny the country its rightful place as a superpower. Nationalist sentiments and security concerns have become intertwined with trade policy, complicating the pursuit of a final deal.
Now Britain, in leaving the European bloc, embarks on a strategy aimed at securing bilateral trading arrangements with major economies, from the United States and China to Australia and India.
Trade deals are complex and difficult. They entail prying open new markets for exports in exchange for exposing domestic companies to new competitors. Powerful interest groups complain. Deals take years.
Arithmetic reveals that no combination of trade deals is likely to compensate Britain fully for what it stands to lose in walking away from the European single marketplace, a territory stretching from Greece to Ireland.
Britain sends nearly half of its exports to the European Union, a flow of goods imperiled by Brexit. Britain’s appeal as a headquarters for multinational companies will be undermined as it finds itself separated from the Continent by a revived border.
The fraying of international trading arrangements and the rise of nationalist imperatives have been driven by intensifying public anger in many countries over widening economic inequality, and the perception that trade has been bountiful for the executive class while leaving ordinary people behind.
In Britain, struggling communities used the June 2016 referendum that unleashed Brexit as a protest vote against the bankers in London who had engineered a catastrophic financial crisis, and who then forced regular people to absorb the costs through wrenching fiscal austerity.
In the United States, Mr. Trump’s political base has rallied to his trade war. In Italy, France and Germany, furious popular movements have fixed on trade as a threat to workers’ livelihoods, while embracing nationalist and nativist responses that promise to halt globalization.
“The era of freewheeling markets and liberalism is ending,” said Meredith Crowley, an international trade expert at the University of Cambridge in England. “People are dissatisfied with the complexity of policy and this feeling that those who have the levers of policy are somehow out of their reach.”
Economists see perils in this unfolding era, especially as governments champion national industries at the expense of competition. They point to history, notably the Great Depression, which was deepened by a wave of tit-for-tat trade protectionism kicked off by the United States through the Smoot-Hawley Tariff Act of 1930.
The law sharply raised tariffs on a vast range of agricultural and factory goods, prompting American trading partners to respond. As world trade disintegrated, nationalist rage spread, culminating in the brutalities of World War II.
The British election, and the splintering of the European trading bloc, amounts to the most consequential upsurge of economic nationalism in generations.
“Since Smoot-Hawley, I don’t think we have seen something as dramatic as this,” said Swati Dhingra, an economist at the London School of Economics.
One major variable has gained clarity: Congressional Democrats and the Trump administration this week hailed an accord that clears passage of the renegotiation of the North American Free Trade Agreement, the deal that has allowed some $1.2 trillion worth of goods a year to be exchanged freely across the United States, Canada and Mexico.
Yet on another front, Mr. Trump has threatened to impose tariffs on imported automobiles, a step that would be especially disruptive in Germany, Europe’s largest economy. Germany sells far more goods to the United States than it imports, drawing the ire of the American president.
Mr. Trump has openly warned that he could cite a national security threat as justification for auto tariffs. Trade experts have derided that strategy as an affront to the norms of the international trading system.
Last month, Mr. Trump allowed a self-imposed deadline to lapse without imposing auto tariffs. But he has left a major international industry guessing about what happens next.
Since Britain shocked the world with its vote to abandon the European Union, its political institutions have tangled themselves in knots trying to decide what to do with their nebulous mandate to leave. Businesses have deferred hiring and investments, awaiting clarity on future trading terms.
The uncertainty has already exacted significant costs, and far beyond Europe, according to a new paper by Tarek Hassan, an economist at Boston University, and three European accounting experts, Stephan Hollander, Laurence van Lent and Ahmed Tahoun.
Every year since the referendum, the average company in Ireland — which trades heavily with Britain — has seen its growth in investment reduced by 4.2 percent, and hiring is 15 percent less than it otherwise would have been because of uncertainty, the paper concludes. Yet even across the Atlantic, the average American company has seen investment growth limited by 0.5 percent a year and hiring slowed by 1.7 percent.
“There is already a significant drop in employment as a result of the risks of Brexit,” Mr. Hassan said.
Some analysts suggested that the election enhanced the possibility that Mr. Johnson would pursue a softer form of Brexit, keeping Britain closer to the European market. His majority is so comfortable that he need not worry about alienating the hard-liners in his party who favor a clean break with Europe.
But some alteration now lies ahead. If Brexit uncertainty has been damaging, what replaces it is the near certainty of weaker economic growth and diminished living standards.
“It’s going to have massive implications,” Mr. Hassan said.