The Great Coronavirus Divide: Wall Street Profits Surge as Poverty Rises

This has been a worrying week for most people whose livelihoods depend on the state of the U.S. economy. On Wednesday, the number of new coronavirus cases hit almost sixty thousand. The number of deaths, while much lower than at its peak, in April, is now rising in more than twenty states. Without an end in sight to the pandemic, the economic rebound that began in the late spring, after Congress passed the $2.2 trillion CARES Act and some of the initial lockdowns were eased, is showing signs of faltering.

On Thursday, the Labor Department announced that new applications for unemployment benefits rose to almost nine hundred thousand last week, the highest level in a month and a half. The jump followed announcements by the Walt Disney Company, Regal Cinemas, and other large companies that they are planning many thousands of new layoffs. Many small businesses, too, are reducing their payrolls or turning temporary layoffs into permanent ones. “Risks to the labor market outlook are weighted heavily to the downside,” Ryan Sweet, an economist at Moody’s Analytics, told Reuters. “The increased spread of the virus across much of the country could result in an even larger pullback in business activity than expected.”

All of this is happening at a moment when about ten million fewer Americans are employed than were in January, and when the big boost to jobless benefits that was contained in the CARES Act—six hundred dollars a week—has expired. In the past three months, according to researchers at the University of Chicago and Notre Dame, the number of Americans living in poverty has risen by about six million, and the poverty rate has jumped from 9.3 per cent, in June, to 11.1 per cent, in September. Looking at individual groups, the increase in the poverty rate has been largest among Black people (from 18.2 per cent, in June, to 22.8 per cent, in September) and people without a college education (from seventeen per cent to 21.5 per cent). “These numbers are very concerning,” Bruce D. Meyer, a University of Chicago economist, told Jason DeParle, of the Times. “They tell us people are having a lot more trouble paying their bills, paying their rent, putting food on the table.”

Amid all this gloomy news, at least part of the American economy is doing fine, however. Or, to put it another way, a separate American economy is doing fine: the economy of Wall Street. On Thursday, Morgan Stanley announced that, in the three months from July to September, it reaped $2.7 billion in profits, a rise of twenty-five per cent compared to a year ago. Goldman Sachs, Morgan Stanley’s principal rival, is doing even better. On Wednesday, it announced quarterly profits of $3.62 billion, virtually double what the firm earned in the same quarter in 2019. During a conference call with financial analysts, David Solomon, Goldman’s chief financial officer, attributed the firm’s success to “the strength of our diversified business.” However, Solomon also pointed to a more immediate source of the company’s good fortune. “From a macroeconomic perspective,” he said, “the markets continue to benefit from the unprecedented monetary and fiscal support by central banks and governments globally.”

Financial markets are the lifeblood of Wall Street firms, and the U.S. government, through the good offices of the Federal Reserve, has been going to enormous lengths to keep them afloat. In March, some parts of the credit system got clogged up, and the stock market dived—a repeat of what happened in 2008. In response, the Fed slashed interest rates and used its electronic printing press to create trillions of dollars, which it then used to purchase various types of bonds. Confidence was restored, and the markets shot back up, providing a huge boon to firms like Goldman and Morgan Stanley. Another boost directly attributable to the pandemic came from a surge in the issuance of stocks and bonds, as many non-financial businesses sought to strengthen their balance sheets. “I would say it was an extraordinarily constructive and positive backdrop,” Jon Pruzan, Morgan Stanley’s chief financial officer, told the Financial Times.

It’s perhaps unfair to single out Goldman Sachs and Morgan Stanley as winners from the pandemic, although they certainly have been. (In the New Year, when the 2020 bonus season comes around, many of their employees stand to receive big payouts.) Purely in monetary terms, the biggest winners of the coronavirus economy have been tech barons like Jeff Bezos and Mark Zuckerberg, who have seen their huge fortunes get even more gargantuan, and other wealthy investors that have benefitted from the buoyancy of the stock market. Since the end of February, Bezos’s net worth has risen by close to eighty billion dollars—a sum that even he may struggle to get his head around.

The important point isn’t whether tech billionaires or Wall Street bankers have done best in 2020 but that the pandemic has highlighted some glaring economic problems that have been building up for decades: lack of job security; racial inequities; stagnant wages; an inadequate social safety net; and a hopelessly lopsided distribution of income and wealth, in which the richest ten per cent of households own almost ninety per cent of all the stocks and mutual funds. In more normal times, defenders of the current economic system often argued that it rewards initiative and punishes lack of effort. But the tens of millions of Americans who are struggling to make ends meet weren’t responsible for the coronavirus, and neither were the Wall Street traders and investors who have benefitted so handsomely from the policy response to the virus.

If, over the next few months, the stock market finally cracks, which it may well do, that would take some of the air out of the paper fortunes of billionaires like Bezos, and also force Wall Street to share the pain that other sectors of the economy have been feeling. But it will take more than a stock-market crash to create a post-pandemic economy that is fairer, more unified, and more resilient.

The first task is to pass another stimulus bill that extends more financial help to the jobless, to small businesses, and to states and municipalities that are being forced to cut jobs because their tax revenues have plummeted. Right now, Republicans in Congress are utterly failing to meet their responsibility in this area. On Thursday, Mitch McConnell, the Senate Majority Leader, said that he wouldn’t bring a big spending bill to the Senate floor before the election. McConnell explained that he couldn’t sell such a bill to the members of his caucus. A more cynical explanation is that he’s trying to sabotage the economy for an incoming Biden Administration.

But even the passage of another big stimulus, necessary as that is, wouldn’t be sufficient to bridge the gaping divide between the two economies that the pandemic has highlighted. Among the other items on an agenda of real reform would be strengthening the social safety net; boosting the bargaining power of workers; reforming the tax system, particularly the taxation of business income and personal wealth; and coming up with a new macroeconomic-policy framework that doesn’t rely as heavily on the Fed creating money to boost asset prices. Joe Biden has a range of policy proposals that address some, although not all, of these challenges. Make no mistake, though; if he does get elected, he will face a formidable challenge.


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