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Gerald Epstein: The media celebrates Dow 16,000, but the vast majority of stocks are owned by the top 1%

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JAISAL NOOR, TRNN PRODUCER: Welcome to The Real News Network. I’m Jaisal Noor in Baltimore. And welcome to this latest edition of The Epstein Report.

The Dow Jones Industrial Average recently passed a record high of 16,000. But our next guest argues this isn’t so great for the vast majority of Americans.

Now joining us is Gerry Epstein. He’s the codirector of the Political Economy Research Institute at UMass Amherst. He’s also a professor of economics there.

Thank you so much for joining us.

GERALD EPSTEIN, CODIRECTOR, PERI: Well, thanks for having me.

NOOR: So, you know, it’s been in the media. The media’s sort of celebrating the fact that the Dow Jones has finally passed this mark of 16,000. But can you talk a little bit about what that means for average Americans, working-class Americans? And what are the key factors responsible for this rise?

EPSTEIN: Well, for the average American, the working-class and middle-class Americans, this doesn’t mean very much positive, because most Americans don’t really own any stocks, own any equities. They depend on getting good jobs at decent wages. And as we know, the unemployment rate is still stuck at over 7 percent. And if you take into account part-time work or the people who can’t get jobs at a reasonable pay, we’re talking about a much higher rate of unemployment. So, yeah, the stock market is something to celebrate for those in the top 10 percent who own stock, but not much for everybody else.

What’s causing it? Well, it’s ironic, but the same bad trends that are really hurting most Americans are also helping to prop up the stock market. The profit share of income, that is, the share of profits and overall income, has been going up and is at historic highs. The flipside of that is the share going to workers, the labor share of income or wages share of total income is at a historic low. And these high profits are propping up the stock–helping to prop up the stock market. But it’s questionable whether this is really sustainable in the long run.

NOOR: And so you mentioned that the vast majority of working-class and poor Americans don’t own stocks. Then who does own stocks and who benefits from the rising Dow Jones Industrial Average?

EPSTEIN: Well, it’s mostly the top 10 percent own some stocks, 10 percent of the income distribution. But the vast majority are owned by the top–the 1 percent, or even the 0.01 percent are the people who own most of the stocks.

Of course, there are stocks held in pension funds of some people who are lucky enough to have 401(k) plans and pension funds, so there are some middle-class Americans, of course, who own some stocks through their pension plans, and they’re happy to see stocks going up. But it doesn’t help them if at the same time their wages are being cut, they’re being laid off, the price of health care and other necessities are going up. So it does really help them very much.

And so the question is: what’s driving this big increase in stock prices? I talked about the fact that profits are–profit share is at an all-time high. But there’s also the policy of the Federal Reserve, which is keeping interest rates close to zero, short-term interest rates close to zero. And so investors see that they can’t make much money by investing in bonds and other money market assets, so they’re switching their money to the stock market. And that’s creating what looks a bit like a stock market bubble.

NOOR: Can you talk a little bit more about how this is really driving inequality and driving this income gap we see in America?

EPSTEIN: Well, recent data have shown that the 400 richest Americans have just seen their wealth return to the same level it was at the start of the financial crisis in 2007, 2008. And for many of them it’s even–that’s on average, but for many of them it’s gone way beyond that.

And part of the reason why the wealth going to the top 400 families in the country has gone up so much is because they own so much of the stock, they own so much of the corporations and so much of the equity in the country. So that’s driving up a huge–. Meanwhile, most Americans, to the extent that they have savings, their savings are being held in their houses. And as we know, that the housing prices collapsed during the financial crisis, and housing prices in most cities have failed to return to the levels they were before.

So we see the stock market, which is owned by relatively few Americans, climbing and the assets that the vast majority of Americans own, if they own any assets, that is, their houses, those prices have fallen and not recovered. So this is clearly helping to drive an increase in inequality.

The Federal Reserve kept interest rates so low for so long or are keeping interest rates so low trying to get stock prices up, and they think that will contribute to more investment in employment creation, more investment by small businesses and by large firms to help generate good jobs. But that’s not happening.

What’s happening instead is we find that the financial markets are borrowing money from the Federal Reserve at very low interest rates and investing it in all kinds of speculative activities, including speculating on the stock market.

NOOR: And finally, if you can, just briefly lay out some remedies for this rising inequality in the U.S.

EPSTEIN: Well, one thing–we can just start with the Federal Reserve. So the Federal Reserve is lowering interest rates in order to increase the returns on risky assets, thinking that that will lead to more investment in employment. Instead what the Federal Reserve should be doing is targeting their lending to things that really generate productive investment and generate jobs, good-paying jobs, [incompr.] lend money directly to small businesses, impose regulations to force banks to lend for green energy investments and other kinds of productive investments. That’s number one. The Federal Reserve could be doing a lot more to target their lending rather than just pumping up the stock market.

And number two, of course, we need big changes in fiscal policy and big changes in taxation. We need to increase taxes on the top 1 percent and use that money to subsidize and invest in good-paying jobs, good, productive investment.

NOOR: Gerry Epstein, thank you so much for joining us.

EPSTEIN: It was good to be here. Thank you.

NOOR: You can follow us @therealnews on Twitter, send me story ideas, questions–and I’m going to be posting questions for our viewers @jaisalnoor on Twitter.

Thank you so much for joining us.


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Gerald Epstein is co-director of the Political Economy Research Institute and Professor of Economics at UMass Amherst.