To their credit, the Wall Street protesters have identified a problem and wish to fix it. They observe, however incoherently, that people besides them have been getting exponentially wealthier in recent years. They point to Congressional Budget Office charts that show that average household income for the top percentile of Americans, adjusted for inflation, quadrupled between 1980 and 2007, while average income for the lower and middle classes remained flat.
Something else quadrupled between 1980 and 2007 — the value of U.S. stocks, as measured by the Standard and Poor’s Composite Stock Price Index.
Given that the wealthiest Americans make their big money through investment gains and business income, it is no wonder that their income growth and stock market growth keep rough pace with one another.
Meanwhile, wages keep pace with inflation. How could it not be so? The same occupations do not become increasingly valuable to society as time goes on.
The miracle of human productivity is that in the long run the stock market’s growth does outpace inflation exponentially, by about six to seven percent per year, which projects a doubling of principal roughly every 11 years.
So executives and corporate shareholders aren’t getting rich by cracking heads and thieving from the middle and lower classes — they are simply following the trajectory of the market while wage earners follow the course of inflation.
Note that as time goes on, the market growth curve and the inflation curve will grow farther and farther apart. This fact, more than anything, is why it’s so foolish and dangerous to look to government to equalize property distribution. Short of full-blown communism, all the jobless benefits and entitlements in the world will never change the divergent trajectories of the market growth curve versus the inflation curve. Those divergent paths are the source of income inequality, and income inequality is the hottest itch on the Wall Street protester’s soul.
The way out for poor Americans is not to get and then spend an occasional stimulus check. It is to get some portion of their income, however small initially, on the stock market trajectory. The wonder of the American free market system is that people with no time to spare, no investment savvy and very little money can nonetheless buy a piece of the country’s exponential financial gains by investing in a diversified stock market fund and holding it for the long haul.
The sublimely simple solution for the protesters on Wall Street is to find some monthly expense they can scrap — perhaps the cost of living joblessly in a public park, to start with — and instead invest the money in the system they acknowledge multiplies it so wondrously.
One day, the angry protesters on Wall Street might change their tune about raising the capital gains rate. For now, they’re just banging loudly on an open door.
David Andrukonis is a technology entrepreneur and occasional contributor to The Daily Caller.