Photo by Spencer Platt/Getty Images
For 13 years, stock market investors have been waiting for one of the biggest parties in the history of financial markets to come to an abrupt halt. When the global financial crisis hit in 2008, everyone suffered, including owners of capital. But in the years that followed, wealth owners enjoyed unprecedented prosperity while workers’ incomes stagnated.
Between 2009 and 2014 real wages in the UK fell by 6.7 percent. They only returned to their pre-crisis levels in February 2020, weeks before the world went into lockdown. The pain of the 2010s was a marked change from what came before: between 2000 and 2008, real wages had risen by almost 20 percent. In short, the impact of the financial crash was severe and long-lasting for millions of people – reversing the gains made by working people in the 2000s.
But for the lucky few who had the money to invest in stocks in the years following the crash, the gains have been remarkable. After the collapse of 2008, which lasted until early 2009, the party started. In the second week of March 2009, the FTSE 100 bottomed and began its steady climb; Since that spring, its value has almost doubled.
Most of the country did not participate in this rally: only one in nine Britons directly own British stocks. But an even bigger party has taken place across the Atlantic, at the Stock Exchange, home of the tech giants that have changed our lives (like Apple, Microsoft, Amazon, Google and Facebook). After nearly halving in value between September 2008 and March 2009, America’s main stock index – the S&P 500 – has since quintupled. The Nasdaq 100, home of the tech elite, has risen 11-fold in that time (an increase similar to the “dot-com” boom of the late 1990s).
Only one in 50 Brits directly owns shares in American companies. Most people in Britain, whose real wages have been underwater for a decade, have been left out of the untold wealth being created in the UK and US stock markets. Direct ownership of shares (other than shares held by pension funds) is limited in the UK as most people do not have the excess wealth needed to speculate in shares. The typical UK adult aged 25-34 has a net worth of £400. The average for 35-44 year olds is £3,700 and for 45-54 year olds £5,200. (This excludes property, annuities, or tangible assets, all of which are illiquid and cannot be easily reinvested.)
The stock market party was fueled by official politics. In an attempt to revive economies in the wake of the global financial crisis, central banks around the world have adopted policies of “quantitative easing,” or QE. These policies have deliberately inflated asset values by buying up government and corporate bonds with artificially created money.
This was a means of boosting growth after interest rates – the traditional tool of monetary policy – spiraled out of control after being cut to near 0 percent. Lower interest rates lower the cost of borrowing and create incentives for individuals and businesses to buy and invest. But when interest rates failed to cut any further (after hitting the “zero floor” in economists’ lingo) and Western economies continued to languish, central banks turned to QE as a way to provide additional stimulus.
The effectiveness of these policies as a means of stimulating growth is the subject of much academic debate. But there were two episodes of QE that are undeniable. First, QE has been used as a way to quell investor fear whenever equity markets have faltered over the past decade, as in March 2020 when the Bank of England turned to QE to fuel a “cash rush.” to calm down, which could have led to an economic crash (as I described in detail in a long read at the time).
Second, QE has inflated assets and sparked a party for wealth owners – in both the stock and housing markets. This was done on purpose, and successive Conservative governments have failed to introduce capital taxes that would mitigate the financial inequalities fueled by QE.
Capital is taxed more generously in the UK than income from income. Capital gains tax – a tax paid on the money you make by buying a stock cheap and selling it high – is levied in the UK at 20 per cent on non-residential financial assets, while income tax on income over £150,000 is 45 per cent amounts to . If you’re paid £200,000 as an employee in the UK (and don’t have a student loan), you’ll pay £84,910 in tax. But if you make £200,000 trading shares, you’ll only pay £37,540 – less than half.
In other words, our tax system rewards “unearned” income from financial speculation, while “earned” income from paid work is relatively penalized. This somewhat undermines the progressive nature of the UK income tax system; For the owners of capital, income is the tax official – the real money is made in the markets. And for the past 13 years, conservative governments have presided over an economy where the owners of capital have quietly enriched themselves while everyone else struggles to maintain their income.
As the cost-of-living crisis bites, this reality – which has always seemed absurd and is rarely discussed in Westminster – has taken on a surreal quality. The party in the stock markets is showing signs of finally faltering. The S&P 500 is down nearly a fifth of its value year-to-date and is about to enter a “bear market,” while the Nasdaq 100 is down about 25 percent (the FTSE 100, which is far behind). hardly lagged behind the American markets in the 2010s).
But whatever happens now, the real story of the last 13 years is that so little was done to tax the huge profits that flowed to property owners or capital at a time when the common worker or working class had to endure a lost decade. And this essential fact has so far hardly been the subject of political discussions.
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