There has been much discussion over the last several years about the existence of “two Americas.”
The politics of recent days notwithstanding, there are more likely three.
Main Street, Wall Street and Washington are becoming ever more separated, operating, in many ways, entirely independently of one another.
It’s most evident on Wall Street. Despite political gridlock, if not outright dysfunction, in Washington and a pervasive sense of unease, maybe even dread, on Main Street, the stock market appears immune to the risks that used to affect it on a regular basis.
Markets “climb a wall of worry.” But that somewhat stale aphorism doesn’t accurately capture the divergent nature of the “three Americas.”
Stock prices are at, or near, record levels. There are solid reasons that explain that phenomenon, regardless of how the other “two Americas” are faring.
Corporate profits have produced double-digit growth in each of the last two quarters, while revenue growth has also accelerated beyond expectations. Indeed, profit growth has meaningfully topped analyst expectations in the first half of the year.
In addition, the world is beginning to enjoy, for the first time in over a decade, synchronized global growth.
European economic activity is accelerating, Japan’s second quarter GDP expanded at a 4 percent annual rate, and China and the world’s emerging markets are also back in the black.
A weaker U.S. dollar, while emblematic of the problems in the nation’s capital, is also a boost to the economy. It makes U.S. goods less expensive in world markets and provides an unexpected lift to profit at U.S. multinational corporations.
Interest rates remain low by historic standards. The U.S. economy, by itself, is stable, with few signs of inflation.
On Main Street and in households, however, it is a different story. Pockets of people remain underemployed, undereducated and unprepared to cope with the radically changed nature of the relationship between labor and capital.
True, unemployment is at the lowest level in over a decade and the number of open jobs sits at a record 6.2 million.
But numerous public policy failures have clearly left those on Main Street on edge.
A lack of education and retraining, for example, for workers who lack the skills to compete for jobs in advanced manufacturing, or even middle-skill positions we used to call vocations, is apparent in what we blithely call “the skills gap.”
The ever-diminishing social safety net and the rising costs of education and health care (a type of inflation over which the Federal Reserve has no control) means more and more of the middle class lives paycheck to paycheck.
Housing affordability has gone down, while household debt has gone up — now to record levels. That means that the average American may be only a week or two away from losing a home or a car, or suffering some other sort of financial calamity.
And, of course, the nation is now riven by social strife. That will likely get worse before it gets better.
In Washington, there simply are no words to describe the descent into darkness that has paralyzed those who should be the most active in advancing an agenda that assists those most in need.
Even the basic functions of the government — passing a budget, raising the debt ceiling and addressing immediate spending needs — appear to be Herculean tasks.
Instead, we have a daily display of misinformation and legislative gridlock that should be raising alarm bells on both Main Street and Wall Street.
But, again, Wall Street remains immune.
I’m not certain that without some sort of booster shot, this immunity can last.
The quality of the stock market rally has deteriorated noticeably. Pockets of speculation have emerged, tiny bubbles to be sure, as in the case of cryptocurrencies like bitcoin.
But there are also dangerous levels of speculation in asset-backed securities, collateralized loans and certain quarters of the real estate market.
This divergence among the “three Americas” may continue unabated, as what’s important to one may simply not be important to another.
But I suspect, though I have been wrong about this for nearly six months, that we will soon see more convergence than divergence.
And should the “three Americas” again converge, Wall Street may decline to the level of the other two, rather than Main Street and Washington rising up to the only one currently standing.