Though Workers Are Now Investors, They Don’t Think Like Capitalists
If the Beatles were still together, they would probably be singing about day traders, not day trippers.
Anyone who watched last month’s World Series saw a social phenomenon hurtling toward critical mass. Once, most of the ads would have been for fast cars; this year, it seemed that every other commercial hawked an online stock trading service. Real men, apparently, don’t put the pedal to the metal anymore; now they put the hammer to the Dow.
To Richard Nadler, the executive director of the American Shareholders Assn., all this is the cutting edge of a social and political revolution. “The most significant demographic shift of this century,” he writes a bit breathlessly in a new paper for the libertarian Cato Institute, “is the rise of history’s first mass class of worker capitalists”--men and women who not only work for wages but own stock.
There’s no doubt that involvement in the stock markets is spreading. As Nadler shows, the number of investors has been growing almost as fast as the value of the markets themselves over the last 15 years. In 1983, 19% of American households owned stocks; today over 48% of households are in the market through direct ownership of shares, mutual funds or employer-provided retirement programs such as 401(k) plans, according to an exhaustive study released late last month by two securities trade associations. And it’s not just the rich who have taken the plunge: Half of all equity owners earn less than $60,000 a year. In all, nearly 79 million people now own stock.
Nadler believes this move into the market prefigures a massive political movement as well. Mass ownership of stock will “everywhere . . . tend to align worker interests with those of capital,” he writes. As investors, he predicts, workers will join management in demanding small government and the low-tax policies that business favors.
This idea has enough currency on the right that leading conservative strategist Grover Norquist has been lobbying to convert state public pension plans into 401(k) accounts on the theory that more investors mean more conservative votes. But is that so?
The rise of the market culture probably has contributed to growing interest in policies specifically meant to reward investment--like cutting the capital gains tax and creating individual investment accounts in the Social Security system. It may also be feeding demand for a balanced federal budget, which helps keep interest rates low and, thus, stock prices high.
But so far the growing participation in the stock market hasn’t generated any real tail wind for shrinking government. If anything, the buoyant economy (symbolized by the soaring markets) has taken the edge off the public’s anti-government sentiments of the early 1990s. Tellingly, Republican calls for a massive tax cut never caught fire this year. And despite the unmistakable interest in adding individual accounts to Social Security, more detailed polling finds deep ambivalence about abandoning the security of the existing system.
Why hasn’t the surge into the markets had more impact on the political world so far? Probably because, even with the growth in ownership, stocks still aren’t a central part of life for enough people. Many people own shares solely through retirement plans, which tend to be removed from their day-to-day financial calculations. Stocks owned outside of retirement plans constitute only about one-fifth of total financial assets, even for those who invest directly in individual companies; the same is true for investors in mutual funds.
And despite all the ads, not many Americans are yet hunched over their laptops, trading into the night. Fully 55% of stock owners made no trades at all in 1998, the study by the Investment Company Institute and Securities Industry Assn. found. Just one stock owner in nine made as many as a dozen trades. Those numbers all support Democratic pollster Mark Mellman when he says: “Most people don’t define themselves primarily as investors. They define themselves primarily as workers.”
Even so, Nadler may be onto something--if ahead of himself. One piece of evidence is the massive Pew Research Center survey of American attitudes, released last week. It found that middle-income Americans who buy and sell stocks do hold slightly more skeptical attitudes toward government spending and regulation than non-traders at the same income levels. (The differences are generally smallest among the wealthiest.)
Results like that could matter more over time because trading itself could matter more, to more people. Young people have been increasing their stock ownership faster than any other group and investing a larger share of their total assets in the markets. If those trends hold, they point to a widening demand for pro-investment policies in the years ahead.
The unanswered question is whether that will ignite a broader demand to roll back government. There’s reason to be skeptical. Even with the stock market booming, surveys this year consistently found that wide majorities of Americans prefer to invest the budget surplus in Social Security and Medicare, rather than in the ostensibly pro-market alternative of cutting taxes. Any sustained downturn in stock prices could both slow the rush to invest and dim the allure of individual investments as a substitute for public programs to help Americans face major financial challenges such as paying for college and safeguarding secure retirements.
Ordinary Americans may never be as emotionally and financially invested in the stock exchanges as Nadler predicts. But the coming of Wall Street to Main Street does testify to a growing confidence among average families about shaping their own futures, a shift evident in other trends, including the rise in self-employment.
That doesn’t mean Americans will abandon the great collective institutions they have built to share risk and broaden opportunity--everything from the public schools to Social Security. But it does mean they are likely to demand reforms that give them more choices: innovations such as charter schools and individually controlled investment accounts that would supplement, not replace, Social Security. The millions of investors plunging into the market are mostly hunting for a better return, but they are also displaying a desire for personal control that is likely to be a hallmark of politics in the next century.
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See current and past Brownstein columns on The Times’ Web site at: https://www.latimes.com/brownstein.
