Fairfax (VA) and Montgomery (MD) counties are routinely at or near the top among U.S. counties on the matter of per capita income. The politically focused use the latter for political purposes. Get it? Federal government workers and workers adjacent to the federal government earn a lot of money.
The income statistics are disturbing, but they’re also misleading. What’s left out of these county measures of income is that they gloss over a more important truth: rare is the W-2 earner who gets rich from those earnings. Income is income, while true wealth of the multiple millions and billions variety is attained through equity, not income. Looked at in a wealth sense, Fairfax and Montgomery aren’t nearly as prosperous as is assumed.
Income versus wealth came to mind last week while reading Judy Shelton’s most recent opinion piece about the Federal Reserve. Shelton wrote that “The Fed’s decisions reward some people and hurt others, with obvious political implications. Almost 62% of the gain in U.S. household wealth over the past four years went to those in the top 10% wealth percentile group.” Shelton views the previous numbers negatively, but the bet here is that she could be persuaded to view them positively, all the while wishing that wealth gains going to the top percentile were higher.
To see why, consider what Shelton went on to write, “These outsize gains for the wealthiest Americans are a result of monetary policy that sent stock prices soaring, which primarily benefited people already flush with assets.” The bet here is that Shelton could similarly be persuaded that the Fed’s machinations had nothing at all to do with soaring stock prices, but for now consider the important point Shelton was making: rising wealth is a function of investment. Absolutely.
The rich don’t spend themselves to wealth, rather their wealth increases as they take the wealth that they already have and put it to work. Which speaks to the multi-layered genius of wealth creation. Much more often than not, individuals attain great wealth by expertly serving the common man (see Walmart, Amazon, Facebook, Google, Dell, etc.), and then precisely because they can’t reasonably spend the fruits of all the wealth they’ve created, the rich then direct their savings to the great businesses of today and tomorrow. This is the truth revealed by Shelton’s stats. Naturally any stock market advances at any time skew toward the very few rich simply because the truly rich, as opposed to the W-2 well-to-do, get that way by putting their surplus to work via investment.
Back to the stock market, Shelton no doubt knows that global central banks have largely mimicked the Fed for years, but without the resulting stock-market rallies. Which is logical. Stock markets gain strength not from government intervention and meddling with the price of credit, rather they get it from the replacement of the bad and mediocre with the good and great.
We saw this brilliant truth in the latest leg of the stock-market rally as Nvidia replaced Intel, notably amid 525 basis points worth of hikes by the Fed. Which is a reminder that the rally had nothing to do with the Fed, and everything to do with rich people directing their surplus wealth to an equity market populated by former unknowns like Nvidia that replaced once grand knowns. That their beneficent ways have been rewarded is a very happy sign, and one that we all (including Shelton) should hope to see much more of.
