Occam's Razor

It’s pretty hard to keep up with the inanities coming out of the mouth our “president”. As a Democrat he sure embarrasses me, but I often wonder why Republicans are not. If retiring Senator Bob Corker (R-TN) is correct, most Republicans in Congress are embarrassed by Trump, but can’t summon the political will to say so.

Trumps tweets and remarks get weirder and weirder. This is probably due to 50% ignorance and 50% cognitive decline. Still, it’s quite embarrassing. Yesterday, a day after his Secretary of Energy Rick Perry declared that Puerto Rico was a country, Trump told a convention of evangelicals that he has spoken with the “president” of the Virgin Islands. So two top administration officials including our “president” don’t understand that both Puerto Rico and the Virgin Islands are American territories. What’s next? Sending in the marines to take over these “countries”?

Yet on such capable shoulders we are entrusting our nation. The only thing seeming to restrain Trump from his worst impulses seems to be a few officials, principally Chief of Staff John Kelly, Defense Secretary Maddis and Secretary of State Tillerson. They are our firewall of sorts, although there is no guarantee they can restrain Trump. Reportedly they have a suicide pact: if one gets fired they all resign. In any event depending on one unflagging Chief of Staff to babysit Trump 24/7/365 doesn’t seem like a great plan. Trump might launch nuclear weapons against North Korea while Kelly is in the bathroom.

So what does all this have to do with the rich getting rich and the poor getting poorer? Nothing really. I am just venting. But in the boatload of stupid that has come out of Trump’s mouth and Twitter feed recently, there was this from his interview with Sean Hannity on Tuesday:

The country — we took it over and owed over 20 trillion. As you know the last eight years, they borrowed more than it did in the whole history of our country. So they borrowed more than $10 trillion, right? And yet, we picked up 5.2 trillion just in the stock market.

Possibly picked up the whole thing in terms of the first nine months, in terms of value. So you could say, in one sense, we’re really increasing values. And maybe in a sense we’re reducing debt. But we’re very honored by it. And we’re very, very happy with what’s happening on Wall Street.

Aside from the numbers themselves that are off, there is the amazing conclusion from Trump, a graduate of Wharton. Remember, Trump recently bragged that he could beat Rex Tillerson in any IQ test. Trump apparently thinks that gains in the stock market cancel out federal debt. This is surprising in itself, but apparently it only works if he is in office. It doesn’t apply to the Obama administration, which saw the longest sustained growth of the stock market in history. There is no doubt that the stock market is doing very well since he took office, but it’s not doing appreciably better than it did under Obama. Those of us with lots of stocks are just seeing our pile of wealth get larger and larger.

I certainly see it in our portfolio. We take $1900 a month out of it to supplement our retirement. Just our investments (almost all of it in retirement accounts) amounted to $795K on February 1, and is now valued at $857K. Add in our house and other assets are we are millionaires, if a net worth of about $1.41M means that much these days. Gains in the stock market though create wealth only for those who own stocks. Guess what? Many of those who voted for Trump don’t have much if anything invested in the stock market. That’s due in part because there is little money left over to invest in stocks. According to one study, in 2013 the top 1% alone owned 38% of the stock market. The top 10% owned 81.4% of stocks. That leaves 19% for the rest of us. I may be technically a millionaire but rest assured my assets are part of that 19%. In reality I am not even close to being rich, at least not by the standards of the top 10%. I sure don’t plan to buy a Tesla or fly on a private jet to Monaco.

To make money in the stock market though you need to invest regularly over many decades and hold onto the assets. And that’s only possible if you have money left over to invest in the first place. It also means that you also need a relatively secure job, so that you are not raiding your nest egg in lean times. You also need it just to get through recessions and downturns with your investments able to wait out the hard times. If you don’t have all these factors in your favor you probably won’t be investing much in stocks and if you do it will be periodic retirement investments during relatively flush times.

So the surging stock market is really creating wealth principally for the rich who already have plenty of it, exacerbating income inequality. At best its effect for the rest of us is indirect, perhaps by keeping unemployment low thus maybe pushing up wages a bit, or by stimulating investment in the economy. Nothing about the stock market’s rise though fundamentally changes things for the middle class, poor and working class.

Indeed, Republicans seem intent to make things worse. Just yesterday Trump ordered an end to Obamacare subsidies for the working class. This will have the effect of pricing almost all of them out of the health insurance market. This will make healthcare more expensive, increase the probability of bankruptcy due to medical debt and make their financial situation more precarious. In short, they are likely to be pushed down the ladder again. The major reason these classes saw any gains recently was from having affordable health care, which helped protect their assets.

Having tasted real health insurance, these voters are likely to be furious when they vote next November, particularly as the rich will keep getting richer. While the stock market may continue to surge until then, these changes will directly affect the financial stability of the middle and lower classes. It’s likely that when these voters realize they have been shafted once again that Republicans will pay a huge political price.

Ted Cruz is worried about a blowout if Republicans don’t deliver on tax cuts and repealing Obamacare. As he will discover next November these are the factors likely to cause the blowout.