The Two U.S. Economies

Ray Dalio published an interesting LinkedIn article today which characterizes and quantifies the two U.S. economies. He delineates between those who fall in the top 40% of households and those in the remaining bottom 60%.

He goes on to make several key points:

  • By and large, we are prone to head in the oven and feet in the freezer syndrome when analyzing the U.S. economy. In aggregate, the average appears healthy and robust but ignores the polarity of the data, and more importantly the polarity in how different classes are experiencing the current economy.

  • He goes on to consider how the camouflaging effect of the top 10% and its outsize impact on the statistical average could lead the Fed astray when determining policy.

  • In regards to the middle class, he notes that while still significantly better off than those in the lowest quintile, the rate of change in conditions has been far worse for the middle class. This is a result of not qualifying for the social safety nets that serve as an income transfer (Medicaid, tax-credits, and other benefits).

In addition to highlighting and commenting on the current trends he makes a few important suppositions as well.

  • Due to a preponderance of factors, including education, automation, asset composition, paucity of savings, reliance on potentially unfunded pension obligations and health deterioration, this divide is likely to grow starker in the coming years.

  • The disparity in financial conditions is a major cause of slowing economic growth. His rationale is that those in the bottom 60% have considerably higher unmet needs and desires and therefore have a much higher propensity to spend any marginal increase in income.

  • Economic polarity is driving political polarity and giving rise to growing social unrest and tension.

I've tried to distill the article down to it's major points, but it's worth reading for yourself: Here

Do you agree, is this the biggest economic, social, and political issue of our time? Or is it a self-correcting phenomenon being wielded for political purposes?

If deemed necessary, what would be the right form of intervention? Lets hear your thoughts..

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