Who Wins In Recessions? The Rich And Lucky.

Mutual Funds

Billionaires have done well between March 18 and May 19 according to the Institute for Policy Research. Consumer spending is down 7.6 percent in the first quarter of 2020 from the last quarter of 2019, but composition of consumer spending has changed. The demand for online shopping and news exploded Jeff Bezos’ wealth, (he runs Amazon

and owns the Washington Post) by over 30% to $141B billion. His ex-wife’s wealth grew even more, by 33%. Bill Gates, Mark Zuckerberg, Warren Buffett, Larry Ellison, Michael Bloomberg, and some Walton heirs also have done well in the two months since the shutdown orders in the United States were put in place and an estimated 50 million Americans have lost their jobs.

Another odd phenomenon, odd because wages and salaries usually fall or remain stagnant when there is surplus labor, average workers’ pay actually increased in April, though in March and April there were more people looking for work than jobs available.

Every first Friday the U.S. Bureau of Labor Statistics issues the employment report at 8:30 am Washington DC time, which may be the most attention-getting report from the federal government and the favorite among economists, financial analysts, media, and policy makers. It’s my favorite.

In April, average hourly and weekly earnings rose from $804 a week to $841 because low income workers disproportionately lost their jobs and high income workers kept theirs. When I dive into the first Friday jobs report I go to Table B-6 which reports where workers lost their jobs by industry sector. In April, the low-paid leisure and hospitality lost half of their employment, the finance sector lost hardly any jobs. In this recession, the worst since the Great Depression in the 1930s, high income workers are more likely to keep their jobs — the COVID-19 recession is causing more inequality. High income workers are usually a bit more secure in recessions but economies are interdependent and in the last recession high-paid workers especially in finance lost their jobs. The diffusion in this recession is quite high.

Fed chief Jerome Powell, felt compelled to point out the growing inequality. It was widely reported that the Federal Reserve noted in May that 40% of those earning under $40,000 will lose their jobs in the Covid-19 recession.

The wealthy are always more likely to win in recessions, see NYU economist Edward Wolff study. After recessions wealth and income inequality grows. And households with some debt and the poor are affected much more by business cycles, Berkeley economist Hillary Hoynes reported the last recessions and all recessions uneven effect. An update will surely show worse financial equity effects from the COVID-19 recession.

Another awful and quite pronounced effect of this recession is the effect of the virus and the way we live on those people with less financial means. Longevity inequality was already growing before the pandemic because of the uneven access to health care, health care disparities, and the overall inequality in who lives in healthful places with fresh air, fresh food, and walk-able places. Those most at risk of not living a normal human life span are those more severely affected by this recession than in others because of the virus effect on those with diabetes and other co-morbidities to COVID-19.

The winners in all recessions are the people who keep their jobs and hours, can work at home, and those with excess cash and wealth snap up what owners needing cash sell – lower-priced small business, the lower-priced stocks and bonds, and perhaps even a lower-priced house or two.

This recession will cause more wealth, income, and health inequality.

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