Amazon CEO Jeff Bezos
Photo: mandel ngan/Agence France-Presse/Getty ImagesBusiness Insider, known for click-bait, last weekend tweeted out a nine-minute video on inequality and billionaire wealth during the pandemic. President Trump took the bait, perhaps because Amazon CEO Jeff Bezos had a cameo, and he retweeted the video with a comment: “Too much income disparity. Changes must be made, and soon!” Bernie Sanders couldn’t have said it better.
Politicians want to blame the rich, but their policies are contributing to these wealth disparities. Some corporate executives have become richer on paper as their stock prices rise, while government lockdowns and pandemic legislation have created winners and losers in the real economy.
Business Insider estimated that the billionaires they catalogued have increased their wealth by $637 billion during the pandemic with Mr. Bezos’s rising an estimated $48.6 billion, Tesla CEO Elon Musk’s by $17.2 billion and Zoom founder Eric Yuan’s by $2.5 billion. Most own sizeable shares of tech companies whose stocks have been on a tear this year.
The tech-heavy Nasdaq has soared more than 20% this year led by Zoom (290%), Tesla (245%), Amazon (70%), Apple (52%), Microsoft (35%) and Facebook (27%). Amazon’s and Apple’s stock market values have increased by about $600 billion since January. Tesla last month blazed past Toyota to become the world’s most valuable auto maker despite producing 95% fewer cars than the world’s largest car company.
For the first time last month Tesla reported a profit over four consecutive quarters—thanks in part to sales of government emissions credits to other auto makers. These credits are increasing in value as governments tighten emissions standards. Germany and China also helped power-charge Tesla sales with pandemic subsidies for electric cars.
Tech giants have rolled in healthy profits by providing valuable services to businesses and consumers during lockdowns, which wouldn’t have been sustainable even for a couple of weeks without fast online delivery, cloud-computing, and virtual business meetings and hangouts. But most other businesses have been clobbered by lockdowns.
The Dow Jones Industrial Average is down 5.4% this year, which understates the decline among non-tech companies like MGM (-51%), Exxon (-39%), Cheesecake Factory (-40%), GM (-29%), Wyndham Hotels (-30%), Bank of America (-30%) and Disney (-12%). The Federal Reserve during the spring helped provide liquidity to jittery financial markets, but its bond-buying spree and zero interest rates have pushed investors into higher-yielding assets. In this environment, betting on Big Tech is a rational if risky investment choice.
Lockdowns have produced record unemployment. But the $2.4 trillion increase in government transfer payments during the second quarter—from the Cares Act and benefit increases in pre-existing programs—have far exceeded the $795 billion in employee compensation. Since Americans haven’t been dining out or traveling as much, they have increased their saving or are spending more on home improvement. Home Depot’s stock is up 23% this year.
At the same time, personal income from dividends and interest payments has shrunk $82 billion. The government’s latest data show that corporate profits fell $276 billion during the first quarter and no doubt plunged further during the second.
It’s worth recalling how inequality grew during the Obama Presidency as the Federal Reserve’s accommodative policies increased asset prices while an expansion of government regulation and transfer payments slowed the business recovery and growth in real wages. Washington is in the midst of repeating this cycle even as it blames everyone else for the wealth disparities that its policies create.
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August 07, 2020 at 06:26AM
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How Lockdowns Fuel Inequality - The Wall Street Journal
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