As someone who embraces libertarian philosophy, I wish I could say I was truly moved by Ayn Rand’s seminal novel “Atlas Shrugged.” The nearly 1,200-page novel, written by this matriarch of libertarian thought, is regarded by many as the iconic parable employing foundational concepts of individualism, free enterprise and the overreach of the state. Candidly, I’ve found the book has a hard time holding my attention, and I feel almost guilty about not getting as much from the tale as others clearly do.
In the novel, after being relentlessly abused by the state, the fictional society’s entrepreneurs and business innovators secretly withdraw to a hidden land, leaving the remaining population to live without their talents in a less prosperous state of existence. The book requires the reader to ponder the question of what would happen if we allowed the government to “kill the golden goose” of our entrepreneurial class through regulatory overreach and excessive taxation, the question itself being intended as the novel’s moral.
As I look at today’s economic landscape, I can’t help but be reminded of this novel’s theme, as it seems today like a vital class of society has withdrawn from our economy as well. Only in the current economic landscape, it isn’t the entrepreneurs and business leaders who have disengaged and left us behind, rather it seems to be the workers who are necessary to build our American businesses.
It’s no shock for me to say we have a staffing issue in this country. Anyone out and about sees the “help wanted” signs in every type of business. The COVID crisis and the government policy response to the crisis have clearly disordered labor markets. In ways that are not yet completely understood, in my opinion some combination of the enhanced COVID unemployment payments, refundable monthly child tax credits, fear of the virus itself, anxiety over the vaccines, opposition to vaccine mandates and disruptions in the education system have resulted in nearly 6 million fewer people working now than before the pandemic began in the United States, despite there being 9.6 million job openings (source: St Louis Fed).
Like the business leaders mysteriously disappearing in "Atlas Shrugged," where did these workers go? It’s doubtful they’ve retreated to a hidden valley in the mountains (take me). Perhaps demographics is a plausible partial explanation, as recent analysis in the Wall Street Journal concluded 3.5 million Baby Boomers may have viewed the pandemic as a sign it's time to retire. While this could explain part of the phenomenon, it doesn’t explain the entire situation. For the time being, we may just have to accept the vanishing pool of labor as a true mystery. In economics, however, every trend has consequences and the results of this one are clear. With fewer workers, the laws of supply and demand mean wages are going up, and as a business owner and investor I say this is a good thing.
As the government and Federal Reserve have inflated our economy over the past 13 years through deficit spending and expansion of the monetary base, profit margins and asset prices have soared, creating many fortunes in America. At the same time, because I believe labor markets were globalizing with low cost foreign labor, employee wages, especially at the lower end of the wage scale, stagnated for decades. While the Left in America would have liked to solve the problem through higher minimum wages and more taxes and redistribution, in my opinion those approaches were never going to be organic enough to be sustainable and effective. Instead, market-based disruption, compounded by unusual government policy responses to the pandemic have moved the needle on wages catching us up on decade of wage stagnation.
On the flip side of this positive trend, however, are other less attractive consequences. When fast food restaurants are advertising for workers at $21 an hour, I think it's fair to say there’s not going to be a lot of $3 cheeseburger meal deals left in the near future.
Academically, in most economic climates, wages and employment are considered lagging indicators, meaning in an economic recovery, wages are the last thing to recover and rise. It appears this has been reversed in the current economic cycle. When higher wages lead us through the recovery, there’s little doubt that higher prices will follow.
While the Biden administration and the Federal Reserve would have liked to believe higher prices would be “transitory,” it's looking less and less like this will be the case. Most investors, including myself, in this day and age have never managed through a rapid inflation cycle. There will be old lessons to revisit, and new lessons to learn, but we are now in uncharted waters.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing includes risks, including fluctuating prices and loss of principal. Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com. Securities offered through LPL Financial, member FINRA/SIPC.
