I was playing around with data today, and noticed this strong relationship.
If there is a change in the trend of stock market returns, there is usually a similar change in trend in the earnings of production workers, with an average of about a 4 month lag. The change in equity values is much larger, because equity owners accept most of the cyclical risk in the economy.
The 1990s were a period of relatively stable changes in the rate of growth of incomes and equity values. It was also a period of high income growth and high equity valuation growth. Stability is valuable. It should be our goal. To risk instability because investors might internalize that value or because capital might occasionally capture more of that value than labor is a rather self-defeating point of view.
Further, there seem to be two undeniable facts about incomes over time.
(1) In the end, we all rise and fall together.
(2) The distribution of incomes will have a stochastic quality. There will be times when capital benefits more, when high incomes benefit more, or when low incomes benefit more from transitory economic developments.
Given that these two factors exist, there will be many times when the best policy for one group will be to encourage outsized growth for the other two groups.
If a stance against policy is based on the idea that the Fed is backstopping the stock market or the claim that accommodative monetary policy is a "bailout", it is just as much a stance against wage earners as it is against equity owners. This is true even if capital is currently seeing more growth than labor or high earners are doing better than low earners. And, even if we enter a phase when low incomes capture a larger portion of secular growth, capital will appear to benefit more because of its extreme cyclical exposure.
This is not a commentary on safety net policies. Before we consider social support policies, there is the simple point that progress is progress. There is a shocking amount of commentary in this country right now that amounts to saying we should undermine potential growth because it's the wrong kind of growth. Worse still, there are appeals to stagnation that come from confusion, such as misunderstanding the difference between high wage incomes and capital incomes.
The 1990s was a very prosperous time for households with lower incomes. It also happened to be a time when income variance grew and capital income was high. Given the state of technology and the state of the developing world, that is probably what success looks like today - for everyone.
The longstanding challenge of human civilization has been the struggle to overcome our unfortunate tendency to destroy absolute prosperity through battles over relative status.