macro notes: a growing recognition of wealth inequality

A rising recognition of wealth inequality

At the start of the week, this video came up on my feed:

The key point that caught my eye:

But we see that inflation will be I think we're going to have stickier inflation around the world. I don't know what happens in the long term with tariffs, but they have to at some point have and somebody's got to pay for it. You know, either the the company that's absorbing those or the customer, it's got to go somewhere. And what we're seeing right now in the US is very much a UK economy. Think about it. You have the K, you got the upper short leg is maybe 30% of the economy. Those people that have capital, if you had any assets during COVID, you did really well because inflation started kicking in appreciation, in real assets appreciation and stock market, bond market, etc.. But if you were going hand to mouth and you were strictly on a fixed salary and you didn't really have any chance to take advantage, you didn't have any savings, you were hurt. And so what we've had what's happened today is that we have broadened the spread, in my view, between the haves and have nots. That's not good. That's not good at all. We have to figure out what are we going to do to make sure that all people are able to benefit from that.

And I find this to be quite the interesting take, especially given it's coming from someone at his level of wealth. Gosh, a "socialist" would possibly describe him as an "out-of-touch" billionaire (Not my view, note). Which is quite appropriate, seeing as one of the contributing factors to this, that I've described below, is the Zohran mania. It's not a singular individual calling this out.

Chipotle also put out a statement, following a terrible earnings:

And macro analysts:

This increased recognition comes down to a few factors, in my opinion:

1. The end of ZIRP (Zero Interest Rate Period) and the pseudo stagflation scenario that has haunted the global economy through the years following Covid
2. A massive fuel of investment into the AI frenzy - In contradiction of the above point, funding is "cheap" for the bus that no one wants to miss, and a lot of this is going to end up in the pockets of the "profitable exit" group of people, similar to early 2000s tech founders, or even worse, as dead investment
3. Carrying over from that, the "AI optimized" economy that is starting to appear
4. An arguably unstoppable amount of growth in terms of valuation for top companies (MAG7 in particular)
5. The battle against immigration by folks who don't realize the value of low-paid labour and the long-term effect of lowering it
6. A global populace calling for systemic changes, best seen in the rise and popularity of Zohran Mamdani - his recognition of the "success" of the Trump manifesto lying in affordability is clearly something that resonates with a large section of the global populace

And the reason that this group of "elite" folks are bringing it up is that it's going to have a clear, negative long-term effect. I'm no "Marxist", but it's wise to bring up his writings:

Between capitalist and communist society there lies the period of the revolutionary transformation of the one into the other. Corresponding to this is also a political transition period in which the state can be nothing but the revolutionary dictatorship of the proletariat.

It's not an exactly original question, but all the more relevant: what happens to consumption as inequality rises? At what point do fiscal deficits (looking at the US) become insurmountable, even for "reserve" currencies? In my opinion, there will be a point where fiscal austerity becomes necessary, which is frightening in an economy where without some sort of welfare system, it's impossible to maintain the (immensely positive) capitalistic growth that we've seen over the past few years, and more importantly, allowing the bottom section of the wealth demographic to even survive. What fundamentals break down at that point?

What trades/future does this bring?

Over the long term, a probable continuation of alternative assets like gold (which has a huge gap in long-term supply and fresh demand, as in a previous article) rising up. I think we'll see this recognition reflected in the US midterms with the "Zohran" mindset continuing (he's set a great blueprint for Democrats), combined with a high-income class that has more incentive to actually see an enduring capitalistic economy. And I believe that we'll end up with an inversion, where
a Democratic economy ends up as the more "fiscally conservative" government (see quote below). It'll probably mean a lower dollar (especially with a drying up AI led market) in and post that period, and I'd expect higher expenditures from economies that have better fiscal history to see positive returns (Euro and Rupee, possibly). Ending with another quote from Marx:

The lower middle class, the small manufacturer, the shopkeeper, the artisan, the peasant, all these fight against the bourgeoisie, to save from extinction their existence as fractions of the middle class. They are therefore not revolutionary, but conservative. Nay more, they are reactionary, for they try to roll back the wheel of history. If by chance they are revolutionary, they are so only in view of their impending transfer into the proletariat; they thus defend not their present, but their future interests; they desert their own standpoint to place themselves at that of the proletariat.

Favourite Tweets