One of my more favorite songs by the American punk/rock group Greenday is “Wake Me Up When September Ends.” Indeed. Next Wednesday can’t happen fast enough, even if a change in the calendar is nothing more than symbolic. This month has been one to forget, as all news has been bad news, the country seems on the brink of a civil war, and the markets have been, shall we say, disappointing.
There are no two ways about it: this has been a month to forget in a year to forget.
While I am not a psychiatrist, I would imagine the psychological stress of the various economic lockdowns, quarantines, social distancing, etc., has only made the continued societal rest that much worse. After all, the country’s response to the pandemic in the Spring was to close up shop and ‘shelter in place,’ whatever that means. The result of this cure was the worst economic downturn over a compressed period of time in our nation’s history, at least our recorded economic history. Over 22 million people officially lost their jobs during March and April, and it would have been worse but for the Federal CARES Act and the PPP loan program, potentially much worse.
I am not saying or suggesting we would not have had demonstrations and protests this year otherwise. We likely would have. I am simply saying economic dislocation and disenfranchisement have served to make a bad situation even worse. Is it just complete happenstance, spurious correlation even, we have had the most violent riots, the most vehement protests against authority, since 1968 during the worst economic stretch in no less than anyone’s memory? The two aren’t related? I have trouble believing that.
Not surprisingly, doing what I do for a living, I admittedly tend to view the world with an economic lens. I firmly believe people tend to be, shall we say, less disgruntled when they have enough to eat, enough to drink, decent clothes to wear, and a dry, safe place to sleep at night. Further, they tend to ‘buy into’ or support ‘the system’ when they feel as though they have some measure of control over their lives. When society can’t meet these things, discontent simmers before it eventually explodes.
Whether we realize it or not, we have undergone an enormous amount of change over last two decades. Economic globalization, the Internet, and smartphone technology have shrunk the world considerably. Previously, the working classes could only guess as to how ‘the other half’ lives. We could only speculate as to the crassness and materialism of the nouveaux riche, and the elitism of the modern patrician classes. As technology opened windows to their world(s), the magnitude of the inequalities between the haves and the have nots became increasingly impossible to ignore.
Don’t get me wrong. Advancements in technology have considerably spurred global economic, and US median household income was at all-time high prior to the COVID-19 economic restrictions. However, these advancements have also made it far easier to discern socioeconomic differences. Arguably, this has and had engendered an increased sense of, let’s call it, economic class…a heightened sense of us versus them. While hindsight is always 20/20, I had had numerous conversations on the topic prior to 2020’s misfortunes.
So, the inevitable appears to have happened when the manufactured bottom fell out of the economy in order to retard the spread of COVID-19. Festering grievances, which increases in general living standards could mostly placate, have come to the fore as what was once economic inclusion has become economic uncertainty. This has served focus our attention(s) on what divides, as opposed to what unites, us as Americans.
Never in my lifetime have I seen, or experienced, such factionalism in American society, from top to bottom. No one is immune. Perhaps I am just woefully naïve, but I seriously doubt it.
While there is always ‘more to it than that,’ history has proven, time and time again, the best cure for societal upheaval ultimately comes down to economic vibrancy. When people are well-fed, well-housed, and well-clothed, they are less apt to be discontent with their current situation. While this is nowhere near a failproof panacea, people tend not to rebel, revolt, and riot when they feel they are ‘part of the system.’ They are more likely to feel this way when they are economically enfranchised than when they are struggling to put food on the table, all the more so when they are constantly reminded how so many others have so much more than they.
Now, the kneejerk reaction to that last paragraph is to play Robin Hood. Go ahead, put on the green tights, pointed shoes, silly hat, and steal from the rich to give to the poor. That is one way to incorporate the least among us into the whole. However, it also alienates from whom you took. It doesn’t matter how wealthy a society is: half will be below the median and half will be above it. It doesn’t matter if the store of wealth is glass beads, shiny stones, gold bricks, or paper currency. Wealth is relative. Further, economies aren’t zero-sum games.
Taking from the rich to give to the poor focuses on carving up the existing pie into more equitable pieces, as opposed to growing it. Why should someone have one-half of the pizza while three others only get one-sixth? Right? It is only fair, only fair, to more equitably cut the pizza, so everyone can have one-fourth! Again, right?
Let’s do the math.
Assume you have a 9” pizza. Its area is 63.62 square inches (inches). So, initially, one-half of a 9” pizza would have been 31.81 inches. One-sixth would have been 10.60. Conversely, if that is the right word, one-fourth would have been 15.91. Clearly, if you gave everyone one-fourth, one person would have 50% less while the other three had 50% more. How is that not fair? Huh?
Fair enough. However, let’s consider a 12” pizza, which doesn’t really seem like THAT much more when it comes out of the box, does it? However, its area, believe it or not is 113.10 inches. One-sixth of this pie would be 18.85 inches! Please note, the relative size of the slice didn’t change, just the absolute size of the pizza.
So, which is better for the ‘lesser among of us’ in this example, the folks with the smaller slices? Having one-quarter of a 9” pizza or one-sixth of a 12” one? The math says the latter, by 18.5%. As such, the primary focus for any economic system should be to, drum roll please, grow it. It isn’t to carve up economic output differently or ensure all the pieces of pie are the same. No. It is to grow the pie as a whole, and the individual slices will grow along with it.
Again, I am not saying we wouldn’t have had the protests we have had in 2020 otherwise. We likely would have. I am simply suggesting they have been more heated and more violent due to the dislocation and disenfranchisement from the economic lockdowns. We can agree to disagree if need be.
In conclusion, we now know what happens when we shut down economic activity to attempt to halt the spread of a virus: economic wrack & ruin exacerbating societal upheaval. If we decide to ‘do it again’ in order to stave off Wave II or III or IV or V, etc., we have to be prepared for the worst, and we will come out on the other side weaker when we eventually. Weaker economically and, therefore, societally. At this point, I am not certain we can afford to do that.
So…let’s get after it, and let’s grow this thing. Let’s put a proverbial chicken in every pot, and then let’s mend what has broken us. Let’s make the next 80 years of the second American Century one history won’t forget!
Take care, and I hope everyone has a great weekend.
As always, nothing in this newsletter should be considered or otherwise construed as an offer to buy or sell investment services or securities of any type. Any individual action you might take from reading this newsletter is at your own risk. My opinion, as those of our investment committee, are subject to change without notice. Finally, the opinions expressed herein are not necessarily those of the reset of the associates and/or shareholders of Oakworth Capital Bank or the official position of the company itself.