The stock market is a dog whistle
What does the gap between Wall St. and Main St. say about American values?
This newsletter uses the STEEP framework to cover social, technological, ecological, economic, and political issues in an effort to provide a holistic view of the forces & patterns shaping our current reality.
Before I get into it, thank you to everyone who has shared this newsletter with someone or reached out to me about an edition you’ve enjoyed. This makes me happy.
Also, I have a few Clubhouse invites. Let me know if you want one.
Ok, we’ve allowed ourselves one day of revelry and simply exquisite Bernie memes, but we’ve still got deep seated issues to discuss.
Every other day, I hear someone say “…because capitalism” as shorthand for why everything feels so absurd in America today. There is a collective understanding that something is very, very wrong with our current system.
Even billionaires like Ray Dalio recognize that something is really fucking wrong. In this edition, I’m going to summarize his research about where our system is failing and how to reform it, plus a few other tidbits I’ve researched on my own.
Now keep in mind, Ray Dalio is a billionaire who started the hedge fund Bridgewater Associates, so he is basically the Prince of Capitalism. Now that he’s “made it,” he has plenty of time to think about problems he deems important and donate money to fix them.
Side note: Philanthropy by its very nature is a strange concept — why has one person amassed so much capital that they can now just give it away to treat whatever problems they think are most pressing? It’s weird that some of the largest cities in the country have to beg corporations for donations, as if they were running a non-profit.
In a healthy society, there would be a distributed decision making process about which problems are most important and where funds should be allocated (let’s say, oh I don’t know, by the publicly elected officials who are supposed to be improving their constituent’s lives).
But obviously, we don’t live in a healthy society and that is not happening. The American government has marvelously failed in meeting the public’s needs (way, way before Trump).
I’ll spoil it for you — Dalio isn’t quick to trash capitalism altogether. The problem is rooted in unfettered capitalism, without appropriate regulation, coupled with a lack of meaningful social services. This is where the government is supposed to come in.
American society is fractured because our politicians haven’t been focused on achieving measurable results for the majority of Americans — which is why capitalism has reached its logical extreme. This newsletter is a lesson on how tightly woven economics, politics, and society really are.
Ray Dalio goes so far as to say that our current system is an existential threat to America. So let’s get into why.
Part 1: America is not a healthy society, by all meaningful metrics
Part 2: Politicians need to stop thinking about budgets and start thinking about long-term investments for collective well-being (or else we risk domestic conflict)
Part 1: America is not a healthy society
The stock market is soaring yet businesses are closing and people are hurting. What is going on?
In an effort to keep the economy afloat, the Federal Reserve has been making big-time money moves. First off, interest rates are as low as they’ve ever been, to get people to spend more (vs. saving when you can earn interest on your money).
The Fed has also been printing money and buying financial assets, which increases the price of financial assets (because there is a demand for them).
That means that people who own financial assets see an increase in their wealth, and those who don’t own any have a harder time buying any because they are more expensive.
Because wealthy people tend to save more than they spend, wealthy people will probably buy more financial assets because they have no where else to park their money, which makes the financial markets go up even higher.
Dalio notes, “from being in the investment business, I see that there is a glut of investment money chasing investments at the same time as there is an extreme shortage of money among most people.”
The stock market is artificially high right now because wealthy people have no where else to put their cash. Meanwhile, poor people don’t have access to these investments.
This is not a sign of a healthy economy and any politician who tries to quote the stock market as a proxy, is using a vanity metric (or, has a lot of wealth tied up on the stock market, and is just counting his or her own coin).
What makes for a healthy society?
An economic system needs to serve its society, period.
According to Dalio, societies fail when there is:
poor culture (i.e. when people can’t collaborate well)
too much debt
Do you feel like you’re looking in the mirror, America?
On the other hand, countries succeed when there is:
equal opportunity in education and work
good family or family-like upbringing (especially during high school)
civilized behavior within a system that most people believe is fair
free and well-regulated markets for goods, services, labor and capital that provide incentives, savings, and financial opportunities for most people
So if those are societal goals, how’s our report card?
I’ve pulled all of these stats from Dalio’s report, unless otherwise noted.
Financial opportunities for most people / equal opportunities in work: FAIL ⛔️
There is a lot of poverty in America. 40% of all Americans struggle to raise $400 in the event of an emergency.
The economic mobility rate in America is now one of the worst in the world. So much for the rags-to-riches American Dream.
There has been no real income growth for the majority of Americans since 1980. That’s 4 decades. Most people are not being rewarded for productivity (a core promise of capitalism). This is very different for the top 10% of Americans.
Equal opportunities in education: FAIL ⛔️
We have some of the lowest test scores around the world — scoring lower than almost every developed country.
For one, this country doesn’t motivate people to become teachers. Teachers need to pay for their own supplies and get paid 19% less than other comparable workers (this was only 2% in 1994). Check out this video about Americans who have lived abroad and were shocked that schools provided children with supplies. Our expectations have gotten so damn low.
On top of that, poorer schools do about 25% worse than richer schools. And we have a lot of poor schools and students.
The childhood poverty rate in the US is 17.5% and hasn’t improved in decades. This is worse than average — the U.S. is doing worse than Poland, Greece and Chile.
Poor schools see lots of absences. “Disconnected youth” are 5x more likely to get incarcerated and 33% more likely to be dealing with substance abuse.
Poverty ➡️ Poor schooling ➡️ Poor social skills ➡️ Poor work opportunities ➡️ Poverty
Good family-like upbringing: FAIL ⛔️
Roughly 3 million children in the US have a parent in prison or jail. That’s 1 in 28 children. So in roughly every classroom, one kid’s parent is in jail.
This is ABSURD but the U.S. incarceration rate is 5x the average of developed countries and 3x that of emerging countries. Do we really think that Americans are way more into committing crimes than just about everybody else or are we maybe looking at a systemic issue?
States spends $50 billion dollars a year on keeping people incarcerated. That is 1 in 15 general fund dollars.
Not only that, but we have a system based on retribution — we don’t give people the option to truly rehabilitate. And with that, we create a financial liability for our country.
That’s because when you’ve been to jail, it’s way harder to find a job. Being in jail reduces annual salaries by 40%, which makes it really hard for the millions of previously incarcerated people (and their families) to make ends meet.
What does this current state say about America’s values?
We let our children go hungry
We’d rather be better at jailing our people rather than educating them
We’re ok with letting wages stagnate for a majority of the country (without any plan for how automation or cheaper foreign labor impacts the American workforce)
…. and I didn’t even touch on America’s health issues, including a huge uptick in addiction and suicide (pre-pandemic).
When is the last time we saw so much wealth disparity?
The income gap is about as high as ever and the wealth gap is the highest since the late 1930s. The wealth gap that exists today was the same during 1935 - 1940 (and how much conflict ensued during this time?????).
According to geopolitical forecaster George Friedman, American history works in 80-year institutional cycles and 50-year socio-economic cycles, both of which are converging in the late 2020s. Friedman predicts we’re about to see a shakeup in the country’s foundation (on a positive note, he seems hopeful that things will turn out for the better).
I for one, can’t wait for the Reagan Cycle to be over.
Part 2: Reforming capitalism in America
Can capitalism be fixed or should we burn it all to the ground and start over?
Dalio’s point about the “-isms” is that “most capitalists don’t know how to divide the economic pie well and most socialists don’t know how to grow it well.”
On an individual level, capitalism tends to raise people’s living standards. The system is rooted in people being able to borrow capital when they need it, which brings new products and services to life. In the same breath, people should also have a savings vehicle for money that they don’t need right now (by lending it to those who do).
The argument is also that it’s a pretty good motivator (you’re supposed to get paid commensurate to the value that you provide someone who is willing to pay for that value).
Dalio argues that the main problem with capitalism as it is functioning today, is that most people can’t meaningfully participate because there isn’t an even playing field (unequal access to capital, education, skills). The system has gotten too efficient at making the rich even richer, which further widens economic gaps.
He also briefly hints that corporations are not incentivized to be good citizens — in search for profits, they choose to invest in automation or send their workforces overseas to minimize costs. I think he glosses over the point that corporations are simply incentivized to grow profits, even if it’s at the expense of their workers, community, or nation. This is where regulation needs to step in — to define what being a good citizen means (like paying taxes, at the bare minimum).
My two cents:
I think it’s undeniably true that people are motivated to improve their own circumstances, if they are able to do so (some folks like elderly or those who are sick are not able to do so, regardless of how motivated they may be).
I wonder about toxic productivity culture and I wonder about excessively “growing the pie” to create more shit that nobody needs, while destroying our environment.
According to neurobiologist Dr. Whybrow, humans have not evolved biologically to deal with the excesses that American society sees today — our lizard brains, still operating under scarcity mindset, tell us to consume and consume and consume while we can. He notes that social structures need to exist to constrain these impulses. He refers back to Adam Smith (the Daddy of Capitalism), who even back in 1776, argued that a free-market economy works best when competition and and self-interest are constrained by obligations to individuals and communities. We’ve known this from day one, yet we seem to have forgotten.
For the sake of exploring options, I’m willing to buy into the idea that capitalism is good at “growing the pie” for people who are willing and able to play the game. But, the game needs to be constrained.
So let’s assume capitalism can be reformed. How?
Completely putting morality aside, Dalio argues that it makes financial sense to have social services that people can count on.
Social services are not about what people deserve or don’t deserve — it’s about giving people a way out of harmful conditions so that they can improve their own lives (which benefits society as a whole).
The biggest problem that Dalio points out is that American politicians focus on budgets, rather than investments. Budgets are all about spend — and how to minimize. Investments look at returns (how benefits outweigh the costs) over time — and results.
The societal math we do in this country is completely out of whack. We don’t calculate the cost of negative consequences within society and we don’t reinvest where it counts. We’re just continuously passing the buck without any real accountability.
Dalio proposes that the government raise taxes from top earners to invest in programs where benefits outweigh the costs over time (i.e. don’t create new ongoing financial liabilities). He calls this “double bottom line investing.”
A short list of impactful investments :
Invest in education. The all-in cost to society to have poorly educated people is very high! There should be no such thing as “poor schools” and “rich schools.” If you have the motivation to learn, you should have the ability to succeed regardless of what situation you’re born into. My two cents is that we also need to re-think vocational training, since not everyone needs a college education.
Invest in eliminating poverty. Children under 5 who received food stamps had 18% increase in high school graduation rates. Which means, they’re less likely to end up in jail. This pays for itself.
Tax pollution and causes of bad health that have costs on society. I’d add that we should continue criminally charging people (like Governor Rick Snyder of Flint, Michigan and opioid CEO John Kapoor) who perpetuate these conditions.
Ultimately, we need to find a balance between competitive forces (motivators) and community responsibility (stabilizers).
Can we rely on our politicians to start investing in long-term wellbeing?
Now that the Democrats have razor-thin control over the House, Senate, and the Presidency they have 2 years to do something meaningful (before the next big Congressional election cycle). That’s not very much time and I’m not sure Democrats will be able to keep this majority post-2022 (since the races were so close).
Nowadays, a political party needs to have this majority for basically anything to happen. Congress is more extreme and divided than it ever has been before. Dalio studied 14 cases of populism and noticed a pattern — opposing forces in populist nations block one another on purpose and cause gridlock. Sound familiar?
Maciej Ceglowski provides some historical context in this essay:
“Younger readers might not realize that Congress used to pass laws. But just like one of those 70’s progressive rock bands that takes two decades to release its third album, Congress has gone from being a legislative body that could routinely churn out major legislation to one that struggles to even pass a budget.
Harry Truman famously derided the 80th congress in 1949 as the Do-Nothing Congress. But compared to today’s congress, it was a hive of legislative activity. The Do-Nothing Congress passed both the Taft-Hartley act and the Marshall Plan. It passed 904 other public bills!
Today we are legislatively stuck, It has been 30 years since the last major reform to our immigration laws, 12 years since we passed a health care bill, 22 years since the last (and only!) online privacy law was enacted, and we’ve gone 11 years without a Federal adjustment to the minimum wage. The only kind of bill that sails through Congress anymore is a military appropriation. Everything else bogs down.”
Just lol @ the only bills that our country can push through is to increase our military industrial complex. This seems to be what we value as a nation, point blank.
Maciej points to this divide in the political sphere as a result of the divide in our public sphere. He says that a cynical, self-serving maniac like Mitch McConnell couldn’t have existed in the 1960’s because there was a public sphere that wouldn’t have allowed it. I’m not going to go into it, you can read his essay for more.
I wonder how this will continue given that people tend to exist in entirely different information ecosystems, depending on ideas they already have (and the people who create these disparate ecosystems have financial incentive to keep doing so).
What do America’s politicians need to do?
Politicians need to start talking about investments, rather than budgets. Constituents (me and you) need to demand real metrics — around poverty rates, school funding, incarceration rates (for starters) — rather than letting politicians get away with bullshit rhetoric meant to rattle people’s identities.
We need a country where simply existing feels less hard.