The Gamestop, Robinhood, Citadel, Reddit, Ryan Cohen, WallStreetBets, DeepFuckingValue saga is some seriously monumental shit. It represents major shifts in the world. It highlights one of the largest problems we face today, inequality, and will serve us well to pay close attention as this situation plays out and to look to history for how it will affect us.
The market and the economy, while related concepts, bifurcated long ago. This accelerated in the late '90s or early '00s with the rise of the mega-bank and continued with the "bailouts" of the '08 Great Recession. JPMorgan, BlackRock, and others like them took such large positions in public markets that the everyday person, the individual, the "retail investor," just doesn't carry the weight they used to.
When unemployment rose to historic levels in the past, lower aggregate earnings meant retail investors needed to extract cash from the market for use in everyday life, thus deflating the market. Economy gets worse, market suffers. Seems clear, right? No longer the case. “Stock ownership among the middle class is pretty minimal,” said Ed Wolff, an economist at New York University, to The New York Times. While a recent Gallup poll shows that 55% of Americans own some stock, the Federal Reserve shows that less than 14% own stock directly.
As the general store closes because covid nation can't even leave the house, Amazon rakes in the new customers and a surging share of wallet. This drives further separation between market and economy. Nir Kiassar said this on Bloomberg: "The market is not the economy. Its job is to tabulate investors’ consensus views about the future of publicly traded companies. It pays no attention to private businesses or government or other important parts of the economy."
Small, private businesses create nearly 50% of jobs in the U.S. But even with unemployment at historic levels, peaking at over 14% in May 2020 before falling back down to about 7% just before the new year**,** we've seen no correlation to market growth. The poor get poorer, and the rich get richer is what we're hearing. The market pays no mind to these changes.
So what specifically is the problem? Is it that the markets are broken, or is something larger showing itself through the functioning markets? The problem underlying all of this is inequality. Inequality leading to income inequality, rules inequality, opportunity inequality, the establishment vs the people. Inequality is the gravest challenge we face today (right there with climate) and could represent the most prescient issue we can address to preserve the well-being of society.
Inequality has been the driver of the demise of countless societies throughout history. Take this excerpt from The Lessons of History, by Will and Ariel Durant, **one of my all-time favorite reads for its concise summary of the most critical teachings from the past:
We conclude that the concentration of wealth is natural and inevitable, and it's periodically alleviated by violent or peaceable partial redistribution. In this view, all economic history is the slow heartbeat of the social organism, a vast systole, and diastole of concentrating wealth and compulsive recirculation.
While that's a difficult pill to swallow, like Neo, we don't have more than two choices here. The red pill, peacefully redistribute wealth, or the blue pill, in Durant's words, violent redistribution.
They provide another example through history: "In the Athens of 594 B.C., according to Plutarch, 'the disparity of fortune between the rich and the poor had reached its height so that the city seemed to be in a dangerous condition, and no other means for freeing it from disturbances... seemed possible but despotic power. The poor, finding their status worsened with each year — the government in the hand of their masters, and the corrupt courts deciding every issue against them began to talk of violent revolt."