Poor Excuses

As the U.S. housing sales slow-down, the stock market goes through another “correction” (10% decline from the high that year) giving up virtually all the gains for 2018, lay-offs accelerate (particularly in the rust-belt automotive sector), healthcare costs rocket upwards as the Trump administration continues to try and eviscerate the Affordable Care Act and as consumer prices jerk upwards from Trump’s policies and his multiple-front trade wars, it is interesting to note who gets hurt the most… and who does not. Especially in light of the economic storm that is building.

There is a growing consensus among leading economists that a recession is just around the corner, perhaps already beginning. There’s still some growth in those predictions – albeit a meager one per cent projected GDP increase – but that is uncomfortably close to a contraction that would signal a clear recession. The U.K.’s flailing over a Brexit deal and the collapse of the currency values in developing nations heavily in debt to Western, and particularly U.S., financial institutions is not helping either.

Recessions might be good for rich bottom-feeder investors looking for bargains, but they really are not so good for the rest of us. When share prices fall, companies tend to tighten their belts. That suggests more layoffs, less investment in growth-directed productivity and more financial instability everywhere. The Federal Reserve is torn between raising interest rates to dampen the effect of cheap money on corporate expansion policies and the general rosier employment picture versus the notion that a recession may be coming and just might need some relief from expected interest rate increases.

Whatever benefits to companies may have happened with the GOP tax reform giveaway to the rich have long since worn off in share price increases. What we got was mostly stock buybacks and dividends and a massive increase in the federal deficit (that clearly is not going to get paid back by increased corporate spending); what we didn’t get is more corporate spending on good jobs, additional productivity investments and a permanent upturn in the economy. Once again, with unbridled consistency, “trickle down economics” (aka, “supply-side economics” or incenting the “job-creators”) have totally failed to “trickle down” to anyone but the richest in the country.

We face Trump’s proclivity to double down, notwithstanding clear indicators from experts that his policies might sound effective but probably will not work in practice. While he continues to tout the tax cuts to the wealthy as success, the tsunami of resulting negative effects drowns out his related braggadocio. Recently, the market truly reacted when, after his dinner with China’s President Xi at the Argentina G-20 meeting, virtually nothing was accomplished, and Trump adopted a self-descriptive “Mr. Tariff” label; the Dow fell 799 points the next day.

Looking at the above, I would like to get back to the issue of who gets hurt the most based on the above contracting economics here in the United States. Sure, a billionaire might be worth less if the shares he or she owns drop, but the fall in values is not remotely a lifestyle-changer for those at the top of the economic ladder. As I suggested, a value collapse, one that might impact average and lower income people hard (regarding retirement savings, home values, job security, government benefits, etc.), often lets the mega-rich scoop up assets (from real estate to companies in trouble) on the cheap or even from bankruptcy.

When the economy recovers, as those assets recover their values, the people who lost out (homes, jobs, etc.) can just sit back and watch the increased values attach only to the rich folks who had the money to buy distressed property. Income inequality simply accelerates. For those on the edge, living paycheck to paycheck, they get slammed really hard during an economic downturn.

Tariffs result in an increase in consumer prices, which are obviously a regressive tax that impacts those at the bottom of the economic ladder the most and has almost no impact at the top. The minimal middle-class tax savings from the GOP tax reform act in a few in states where local taxes are low (tending to be red states) are more than offset in high-urban-based states (tending to be blue states). Let’s face it, it is also whole lot tougher to survive in an expensive city when you are poor than if you live in cheap housing in a rural or less urban area.

As home prices and construction costs have skyrocketed over the years, folks who have owned their homes a long time – having purchased them when housing affordability was vastly more egalitarian – are facing yet another income inequality accelerant: losing their homes to global climate change-driven natural disasters.

Hurricanes, flooding and the resultant rises seas, wildfires and the mudslides that follow destroy homes that are often under-insured or not insured at all. Replacement insurance is often too expensive for those who bought early but whose incomes have not kept up with those living in the now-gentrified surrounding homes. All too frequently, they cannot rebuild, simply abandon their properties and descend into dire poverty. As the poor are driven out of those communities for any number of reasons, the average wealth of those able to remain (rebuilding where losses occur) also explodes.

Nothing illustrates this deeply disturbing trend than the aftermath of the recent spate of California wildfires, many in areas where the tech transformation (the Silicon Valley effect) has sent once-ordinary home prices into the stratosphere and where rebuilding costs are staggeringly high. While there are some who dispute that natural disasters are responsible for accelerating income inequality (they refer to the phenomenon as “displacement” instead), when you just look that the numbers, the hard facts, it is difficult to find otherwise.

The December 6^th Los Angeles Times explains: “Data released Wednesday [12/5] by the U.S. Census Bureau found that while Silicon Valley enjoys some of the nation’s highest incomes, areas of wine country that were devastated by wildfire now have some of the lowest poverty rates in the U.S… A potential factor in that drop? Homes lost to the 2015 Valley fire forced the poorest residents to leave the Napa area entirely, according to analysts.

“‘Where it burned in Napa was an area that was not … filled with individuals that are well off,’ said Walter Schwarm, demographer at the state Department of Finance. ‘Natural disaster is a transformative force. Disasters tend to change the makeup of the population.’… The data come as California grapples with a new era of ever more frequent and destructive wildfires — a trend that has collided head-on with a crucial lack of housing in many areas of the state.

“Most recently, the Camp fire in Butte County displaced tens of thousands of people in and around the town of Paradise, a primarily agricultural area of the Sierra Nevada foothills. Altogether, an unprecedented 21,000 homes across Northern California have been lost to fire in the last 14 months. The disaster has triggered a sharp increase in housing costs as the region struggles to absorb those who were left homeless. Many of those who fled the fire are now facing the prospect of having to leave the area.

“The Census Bureau’s American Community Survey, which is conducted every five years, examined nationwide trends in income, poverty and computer and internet use from 2013 to 2017…. ‘To put it bluntly, people who were worse off before a disaster are usually hit hardest by the disaster and are least equipped to recover,’ said Gordon Douglas, director of the Institute for Metropolitan Studies at San Jose State… Wildfires ‘unquestionably’ have the potential to change the income and poverty demographics of a region, Douglas said.

“Driven by high winds, topography and vegetation, California wildfires have cut broad swaths through bedroom communities. Such was the case with both the Valley and Camp fires, Schwarm said… ‘With the fires, we end up with the core wealthy section of Napa still being there and the others being displaced,’ Schwarm said. ‘This was sort of like Paradise [pictured above] in that as it moved toward Lake County, it was individuals who are retired or working for the wineries who were looking for a reasonable place to commute from.’…

“Author Mike Davis, who has been very critical of regulations that allow development in fire-prone areas, said new housing in fire-damaged areas is rarely built with low-income residents in mind… After the 1991 firestorms in the East Bay Hills within Oakland and Berkeley, houses were ‘rebuilt, and larger,’ he said. A similar phenomenon occurred after wildfires charred the San Diego area in 2003 and 2007… ‘Fire produces gentrification,’ Davis said. ‘We are going to see this play out again and again, and it’s just a taste of what will happen with a major earthquake.’”

What does appear to be indisputable, except to the fact-averse base that believes in Trump’s sloganeering, is that the United States is both witnessing the greatest income inequality in its entire history, the worst in the developed world, and watching a government create a rich flow of policies to accelerate that unfair tilt further toward the richest in the land. Who is going to make the bad man stop? Apparently, not too many of the richest in the land who seem to be among those funding the SuperPAC’s supporting Trump policies and candidates… although his tariff policies seem to scare them too.

              I’m Peter Dekom, and while these policies are making a bad situation much worse, they need to be reversed to prevent further erosion of the nation as a whole.