Happy markets, struggling workers

A NEW survey from the Money Advice Service finds that more than half of Britons are struggling to pay their bills and service their debts, despite record low interest rates. Meanwhile, the FTSE 100 index is up 16% this year. In the US, median real household incomes rose just 0.1% annually in June (on an estimate by Sentier Research) and are still well below their level before the crisis. The Dow and S&P 500 are at all time highs; corporate profits are at a post-war high relative to GDP.

In short, investors are rolling in it, while ordinary workers still struggle. How long can this last? True, higher equity prices are good news for workers in pension funds, although the effect is offset by low interest rates which make it more expensive to generate the actual pension income. But at the bottom of the ladder, many workers have very small pension pots in any case – and are facing the squeeze of austerity programmes that tend to hurt the poorest.

This will surely show up in some way in the form of political protest (such as the recent strike by fast food workers) in the US. and it will also show up in consumption pattterns – those businesses most dependent on the lower paid will suffer, while it will be good news for luxury goods producers.

The defence of this policy, I suppose, is that better sentiment among investors and businesses will encourage job creation and that will help the lower-paid; we may see this confirmed later today in the payroll numbers. The trickle-down effect revived, one might say. But it ought to be a source of unease for policymarkers that the gap between the financial markets and the rest of the economy seems so large. –http://www.economist.com/blogs/buttonwood/2013/08/economies-and-markets-0?fsrc=scn/tw/te/bl/happymarketstruggling