Over the past couple decades, US labor share of GDP has decreased to being well below trend (left chart), while US corporate profits as a percentage of GDP have increased to being above-trend (right chart).
A thread.
In addition to being partly due to technology/automation, another part of this is due to structural US trade deficits.
The US exported large portions of our supply chains overseas, and foreigners took those dollars and reinvested them back into US equities.
Since the top 1% own 53% of US equities, and the bottom 50% own less than 1% of US equities (and many of them had jobs/wages impacted by offshoring/automation), this trend of declining labor and increasing profits/valuations has favored wealth concentration.
Lately this has expanded to the residential real estate market.
Foreigners now also reinvest their trade surplus dollars into buying US single family homes and renting them back to Americans, collecting income from them.
A good piece from the WSJ:
wsj.com/articles/that-…
This structural trade situation is why, despite Europe and Japan having lower interest rates and more QE as a % of GDP than the US, their wealth concentration isn't as high as in the US.
A chart of mean vs median wealth. Numbers via Credit Suisse wealth report:
Americans pay the highest per-capita cost of healthcare in the world.
We also have a higher share of tax dollars spent on military than Europe/Japan, which mostly goes to defending this trade situation that benefits the wealthy over US workers.
Many investors (US and non-US) don't see it, since we're the ones benefiting from it.
However, investors shouldn't be surprised by bouts of populism in the US and elsewhere. The system has been straining for a while now under its own design. Folks push back.
A lot of people like to singularly blame central banks (rates and QE) for wealth concentration since it's easy, but the problem runs a lot deeper and more structural than that.
It's more of a monetary structure, fiscal, trade, and geopolitical problem.
lynalden.com/fraying-petrod…
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