Research Affiliates: Where's The Beef? ‘Lies, Damned Lies, And Statistics’

May 05, 2016

The middle class is getting squeezed from every direction and is sadly disappearing. In 2008, according to Pew Research Center, 53% of adults considered themselves middle class. A scant 6 years later in 2014, as Figure 3 illustrates, that number had dropped precipitously to 44%. At this rate of decline, in 30 years there'll be no middle class left! For the class warriors, don't worry, be happy—the self-identified upper class has shrunk from 21% to 15% in that same 6-year span, so they'll be gone in just 15 years!

Research Affiliates

For a larger view, please click on the image above.

We're being deliberately provocative; we do not expect this to happen because pendulums swing both ways. But this particular swing of the pendulum is profoundly disturbing and is doing a lot of damage to what was once called "American exceptionalism."

New business start-ups suffer too. Individual investors hesitate to fulfill their dreams of beginning their own businesses—home to the majority of our economy's jobs—because they don't know the cost of capital. Near-zero interest rates aren't available to them, and the future cost of capital is unknown but presumed to be higher. The prospective regulatory regime three to five years hence is shrouded in mystery too. Corporations, like investors, are deeply wary about long-horizon investments with uncertain prospects. Why plow funds into long-term risky business ventures when low-risk (but, of course, high-priced) stock is available for buybacks and can be funded with near-zero-rate financing? The endgame is that the economy stagnates and the middle class slowly slips underwater. Is this speculation or fact? January 2016 was one of only a few months since the Great Depression with no IPOs.

The fears surrounding the global economy and the calls for negative interest rates highlight the uncertainty surrounding the near future. When central banks finally step away from overt market interventions, however, capital market valuations will presumably revert to the levels that would prevail in the absence of intervention. Does anyone think that will mean higher price levels? Didn't think so. Accommodative monetary conditions inflate asset prices into asset bubbles that sooner or later will seek their fair value. If the interventions are artificially propping up asset prices, the average investor is justifiably wary. If fair values are lower, the good news is that, after the one-off adjustment, forward-looking returns will once again be sensible.

Big Brother cannot take care of us. Only we can do that. Big Brother is us; the government is us. If we think a bureaucrat can take care of us better than we can take care of ourselves, or cares more about us than we care about ourselves, we're deluded. The more we think we can offload our own responsibility for self-reliance—the longer we take to look under the bun and ask, "Where's the beef?"—the more we invite our elite leaders to continue with the interventionist policies that have inflicted so much damage already.

NOTE: Benjamin Disraeli (1804-1881) served twice as Britain's prime minister and famously described the three kinds of deception, hierarchically from least to worst, as "lies, damned lies, and statistics."

 

Find your next ETF

Reset All