Stocks have had a very good run. From 2011 through 2021, the annual return on stocks averaged 17 percent. Interest rates have been at very low levels for a very long time. The Trump tax cut may have produced a “sugar high,” but who doesn’t like sugar? Generous government payments sustained consumer spending through the Covid pandemic. Correspondingly, unemployment was held down. All this kept companies performing well during the pandemic. With just over 50 percent of Americans owning at least some stocks, that increased wealth and generated income for many people through capital gains and dividends. It also generated a lot of tax revenue for government. These things held true both before and during the pandemic.
Now economic troubles have disrupted the market. Inflation is running at an alarmingly high level. Essential goods—food and energy—suffered painful price increases. The Federal Reserve Bank has begun raising interest rates and taking other measures to bring down inflation to its target level of 2-3 percent per year. Companies with poor long-term situations are having the life-support system taken away. Even companies with excellent long-term prospects are suffering declines in the price of their shares. The prospect of an economic slowdown and the shifting of investment conditions have sent the stock market lower. So far, there have been six weeks of continuing losses.
Beyond the immediate bleeding, there exists the possibility of a long run of lower returns from the stock market. It is impossible to predict the future, but a number of economists are muttering-in-print about a 5 percent annual return for several years. That’s going to be a painful drop from 17 percent. That will affect spending by asset-owners and it will effect tax revenue available to government. Retirees may feel a particular pinch.
What significance do these developments hold for politics? Commonly, the party in power loses seats in Congress in off-year elections. Those are approaching in November 2022. So, the razor-thin majority held by Democrats in the House of Representatives is in danger. The dead-lock in the Senate, breakable by the Vice President only in budget-related “reconciliation” votes, could shift to favor Republicans.
The Federal Reserve Bank is talking about continuing the interest rate increases through 2023 in order to defeat inflation. That suggests that inflation will not be under control before the off-year elections. The larger economy may well slow down. No president, let alone Fightin’ Joe Malarkey, can do much except wait for the Federal Reserve Bank to follow its policy. About all he will be able to do is to inveigh against the rich not paying their fair share of taxes and corporations that engage in price gouging to fatten their profits. This will be ugly.
 Michael Corkery, “For Stocks, Era of Easy Money Jerks to a Halt,” NYT, 14 May 2022.
 Stock ownership in America is both fairly wide-spread and narrowly concentrated. Thus, just over half of Americans own some stock. On the other hand, the top 5 percent of asset owners own 72 percent of the stock.
 To belabor the obvious, retirees have a limited pool of assets to generate income in addition to what they receive from Social Security and—sometimes—pensions. Those assets have to last until some unknowable future death date. There’s a tension between maintaining a suitable level of spending by burning through assets at an accelerated pace and tightening your belt to make sure that you don’t die in a refrigerator box under an overpass.
 In which case Democrats will congratulate Senate Majority leader Charles Schumer for not getting rid of the filibuster.