The Great Recession is a speck in the rear-view mirror for America’s financial markets. They’ve advanced far beyond pre-crisis levels. In fact, Goldman Sachs says you can go back a century before 2008, and still not find a “bull market in everything” like today’s.
If the real economy had roared back the same way, Donald Trump might not be president. Instead, it’s been a grind. While unemployment is near a two-decade low, wages have grown slowly by past standards. They’re nowhere near keeping pace with the asset-price surge.
Elected on a promise of better jobs and pay, Trump is about to pull the most powerful lever any government has for firing up the economy: fiscal policy. By slashing taxes on corporate profits, its authors say, the Republican plan will unleash the animal spirits of American business -- and everyone will benefit.
A rising tide does lift all boats -- but nowadays, in the U.S., not equally. Under both parties, recoveries have become increasingly lopsided. The current one has helped millions of people find work; it’s also benefited asset-owners far more than people who trade their labor for a paycheck. Income distribution, already the most unequal in the developed world, is getting worse. And that’s starting to influence everything from America’s spending habits to its elections.
“The story of our time is polarization -- by party, by class and by income,” said Mark Spindel, founder and chief investment officer at Potomac River Capital in Washington, and co-author of a 2017 book about the Federal Reserve. “I don’t see anything in the tax bill to make that any better.’’
The Fed’s post-2008 toolkit included massive purchases of financial assets, which supported a liftoff on the markets but took time to trickle through to the real economy. Trump’s tax critics say his plan will have a similar effect, because companies will spend the windfall on share buybacks or dividends, instead of job-creating investments. Plenty of executives say that’s exactly what they’ll do.
Bank of America’s most recent buyback program totals $18 billion. Chairman Brian Moynihan championed the tax proposal this month. “It’s good for corporate America, and it’s good for us,” he said.
There was an echo there of one of the American business world’s classic slogans. As applied to the Trump tax cuts, it’s highly misleading, according to Nell Minow, vice chair of ValueEdge Advisors.
Good for U.S.?
This isn’t a case of “what’s good for General Motors is good for the U.S.,” said Minow, who’s dedicated her career to pushing corporations toward long-term investments in people and businesses. “In my list of the top 100 things companies should do for sustainable wealth creation, buybacks would be number 100.”