Politicians yet to feel impact of technology | CraigDailyPress.com

Politicians yet to feel impact of technology

Guest author

The seemingly inexhaustible strength of America’s free enterprise, technology-driven economy, which has produced the longest expansion and the strongest bull market in our history, is inspiring and uplifting.

What isn’t fully understood yet is how this remarkable growth is going to shape American politics and policies in the years to come.

In 1981, the year Ronald Reagan took office, the Dow was about 800, the economy was in a tailspin, and America seemed to have lost confidence in itself. Eight years later, spurred by the Reagan tax cuts, the U.S. economy was roaring back and the Dow had shot up to 2100. The United States was leading a wave of economic deregulation and free trade, the Microsofts and Intels were being born, and Reagan proclaimed that we were in “The age of the entrepreneur.”

After a short pause in 1991, the fast-growth businesses spawned in the Reagan years surged into a higher orbit over the next decade. The Dow has hit 11,000, up 350 percent. The NASDAQ, that barometer of U.S. technology, is up 500 percent. The number of shares traded daily has exploded from 160 million to over 800 million. And there are plans for a 24-hour stock market.

But the broader political ramifications of the spreading prosperity of democratic capitalism will be affected by the emergence of what economist Larry Kudlow calls the “investor class,” which now owns the U.S. economy and could become the most powerful political force in the 2000 elections and beyond.

And what a force it has become. At the time of the 1987 crash, only one-fourth of all Americans owned stocks. Now over 50 percent, about 100 million people, own a stake in Wall Street. Moreover, as Kudlow points out, this new investor class has “profited mightily from the $16.6 trillion gain in real household net worth over the past 10 years, as stock ownership has passed homeownership as America’s principal wealth holding.”

What is most politically significant about the new investor class is how economically broad-based it is.

Since 1989, stock ownership has exploded by 46 percent among households earning between $25,000 and $50,000 a year. It has risen 78 percent among people earning between $10,000 and $25,000. Notably, 49 percent of these investors are women, while 39 percent are non-professional white- and blue-collar workers.

Much of this growth in the investor class is a result of one of the most important economic revolutions in human history: the creation of managed mutual funds, which have opened up investing to millions of Americans who might otherwise be out of the stock market.

Though the mutual-fund industry itself is relatively young, 66 million Americans, or 40 percent of all households, hold mutual funds, either directly or through their 401k plans at work. Here again, the profile of those who are investing in these funds shows that nearly half are largely middle-class and middle-aged.

Mutual-fund industry surveys show that 11 percent of all fund owners have incomes of less than $25,000 a year; 15 percent have incomes of between $25,000 and $35,000; and 17 percent have incomes of between $35,000 and $50,000.

This is why I believe that the investor class is going to have a long-term influence on politics, policy and the future of the American economy.

First, these buy-and-hold investors will act as an anchor when Wall Street goes into one of its periodic slides, providing the market with more stability than in the past.

Notably, when the mutual-fund industry asked its fund holders why they had invested in stocks, 85 percent said “for my retirement.” When asked what they would do in a major crash, 55 percent said they would stay in the market, 25 percent said they would buy more shares, and only 15 percent said they would sell.

These shareholders are also among the voters who tend to show up at the polling booths in larger numbers. And they are going to respond to political appeals to cut capital-gains taxes, end the death tax, and lower income-tax rates across the board.

We have already seen the investor class’s huge influence at work in this decade. The capital-gains tax rate has been cut from 28 percent to 20 percent in the GOP budget bill of 1997, fueling the stock market’s higher growth. The Roth IRA is one of the most popular savings and investment incentives ever enacted. Next month, Congress will send President Clinton another tax-cut bill. President Clinton will veto it, but the provisions in the bill will be popular with investor-class voters, who can be reminded of that veto during next year’s elections.

Another sign of the investor class’s growing influence: Congress is now in the midst of a serious debate about letting workers put part of their payroll taxes into their own stock funds, an idea that is especially popular among younger workers wishing to build wealth for their retirement.

Two things are certain at this point about the revolutionary economic changes that are going on in America right now:

1. As the nation’s economy grows, the investor class is going to grow bigger, richer, and much more politically powerful.

2. This emerging, fast-growth political constituency which will cut across all income and racial lines is going to deeply influence the shape and direction of tax and budget policies for decades to come. (Distributed by United Feature Syndicate, Inc.)