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Wealth gap could close: ‘Most of the inequality comes from the stock market’

Over the past decade or so, wealth inequality has become one of the hottest topics in politics, culture, and economics.

Frustration about wealth inequality has led many to compare the current age we live in to a new gilded age.

Noah Smith is an economic blogger who writes a newsletter. Noahpinion, recently published an article questioning this narrative, noting in part that wealth inequality is indeed shrinking in some respects.

He joined the Texas Standard to talk about data, as well as some alternative approaches to achieving economic goals. Listen to the story above or read the transcript below.

This transcript has been lightly edited for clarity:

Texas Standard: Many people in the Lone Star State feel unequal, especially as they struggle to make ends meet due to inflation, cuts in goods and services, wages that don’t match. Why do you say that inequality may be declining, especially now?

Noah Smith: Well, most of the inequality comes from the stock market, right? Rich people own all the shares. And so when the stock market falls, you see a natural decline in inequality. And that’s a big part of it. Stocks of technology companies especially fell. And the richest people in the country, they all started their own companies, and their wealth is just stocks of their own companies. You know how Elon Musk has a lot of Tesla. And so if it goes down, they will lose a lot of money. I think Elon Musk lost $130 billion this year or something.

Well, at the same time, the impact on someone like Elon Musk when he loses in the stock market is very different from when something far less monumental happens. So I’m thinking about the practical aspect of it. Do we feel any of these effects if there is indeed a decrease in inequality?

Well, that’s the point: not really. Because it doesn’t matter to a normal person if Elon Musk loses a billion dollars. So for most normal people, their salary is much more important, and here we also see some positive developments. We saw the wages of people in the bottom half of the distribution rise in the late 2010s. We have seen them rise more than the wages of the people at the top. And then, when the pandemic ended, we had this inflation that lowered the real wages of people. Wages went up, expenses went up. So the cost of living is going up. But for people at the bottom of the distribution, their wages still outpace inflation. They are growing faster than inflation, and the middle class is the loser. So the working class people and the poor get a respite here. But everyone else suffered from this inflation.

Well, with that in mind, what are you talking about reducing wealth inequality? That this is something temporary, mostly a result of market conditions, or are you suggesting something more about the state of inequality and where we are heading?

Well, that’s a great question. And the answer is that I wouldn’t pay much attention to whether the stock market is going up or down here. I would focus on wages, especially at the bottom level. In the late 2010s, we had a lot of people raising the minimum wage. You had the $15 Fight in Seattle – it was successful, and you had a lot of other cities raising the minimum wage. And in these places, wage inequality has decreased, and it has not hurt the people at the top much. And I think the solution is to just keep going.

The FTC talked about the prohibition of non-compete agreements. So, if you work for Jimmy Jones, why do you have to sign a statement that if you get fired or fired, you won’t go to work for any other sandwich company? This is madness. Thus, it is the ability of workers to switch between jobs that often earns them higher wages because they can wage a bidding war. If you cut it off with some kind of non-competition agreement, then they’re just stuck. And that means they have to settle for whatever wages their current employer basically wants. So it’s just part of the overall effort to raise the wages of the poor, you know, to make life easier for these people.

But then again, kind of a field check: I think a lot of people, if they’re in a low-paying job – behind a restaurant counter or something like that – they don’t sign non-compete agreements. You know, minimum wage jobs – it’s not really going to affect them, is it?

10-15 years ago you would have been absolutely right. I’m using Jimmy John as an example because it’s a known real-life example. We are talking about fast food restaurants. We are not talking about the fact that you are working on the latest semiconductor technologies, fancy research. And I’ll tell you what, Texas is one of the worst in this regard. Texas just loves non-compete agreements. And that’s probably one of the reasons California has been able to maintain leadership and dominance in the tech industry – because they don’t impose non-competition. In California, you may be forced to sign a waiver, but this is not legally binding. No one can ever do anything to you. In Texas they can.

Noah, I read your post and found it really interesting and compelling. But at the same time, I kind of read it as a critique of what has become popular, especially among many progressive people, “late-stage capitalism.”

I don’t know about late stage capitalism because I don’t think capitalism will ever disappear. You know, raising wages for workers is sometimes associated with the rise of capitalism and things like non-compete agreements – it’s not very capitalistic when people sign agreements saying who you can and cannot work for. I think we are moving away from the idea that we should be guided by ideology. And so what we really care about should be goals. You know, goals like giving people cheap housing. And I think that this kind of thinking is slowly taking over. This goal-oriented thinking is replacing the ideologized thinking that was widespread in the last century.

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