One major trend during the last few decades is that financial assets have grown much faster than incomes.
This has created what pundits call the K-shaped economy and a gaping wealth gap – with the top 50% doing well and the bottom half of America having few stocks or hard assets while the cost of housing, healthcare, and education rise faster than their income.
The top 10% of American households by income now account for roughly 50% of consumer spending and own about 90% of publicly traded stocks. This is the defining characteristic of a K-shaped economy.
The key driving force of the K-shaped economy is technology. This is always how wealth is created.
From the steam engine and electricity to the Internet and artificial intelligence (AI), these transformative technologies have reshaped the economy and the stock market.
Software systems that can perform tasks once handled by workers and algorithms analyze data, while robotics operate factories with fewer employees. With each wave of new technology, costs fall, and productivity rises and profits to companies that invent and build the technologies surge.
AI could very well be just as or even more powerful.
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Meanwhile, our Social Security Trust Fund and system urgently need reform to capture superior returns for all Americans while limiting downside risks. Any university endowment, pension fund, or sovereign wealth fund would have invested a portion of its assets in stocks. Then why is the Social Security Trust Fund wholly invested in U.S. Treasury bonds?
Kicking the can down the road cannot continue.
Just this week, an update was released highlighting that the Social Security’s primary trust fund is projected to be depleted by 2032, at which point, benefits for every recipient will be automatically cut by 22% unless reform is enacted.
This issue needs to be front and center during the 2028 presidential campaign, but don’t bet on it.
One initiative I have been backing for decades is introducing stocks in the trust fund in a careful, non-political, and intelligent manner.
Australia’s government pension fund has appreciated to $4.5 trillion, buoyed by a balanced, diversified investment strategy. Australia’s national system has amassed a $4.5 trillion complex of mostly stocks and property, which translates to an astounding $300,000 per worker. The U.S. Social Security Trust Fund currently has about $10,000 per worker, which will be zero by 2032.
What a missed opportunity. If just 20% or $600 billion of the Social Security Trust Fund surplus in 2000 had been invested in the S&P 500, it would have appreciated to $4.7 trillion today.
Many other countries include stocks in their national pension plans, including China.
America is a financial superpower with the means to limit downside risk for this Social Security Wealth Fund, which would back up the Social Security Trust Fund. Other U.S. government stakes in private companies, such as the recent stake in Intel (INTC) and MP Materials (MP), should also be holdings, since taxpayer money funded these transactions. The revenue-sharing deal with Nvidia (NVDA) should also flow to the fund.
This initiative should be bipartisan and managed in a non-political manner, just like an endowment is managed.
Wall Street skills should be deployed to increase Main Street wealth to bolster America’s brand of dynamic stability.
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