Many are saying that the "problem" that caused the recent slip in stock prices is a tight labor market, leading to rising wages: corporations actually might have to spend more on labor, leaving less for dividends and executive bonuses. Inflation, of course, will eat up wage increases, just as it's been doing since the 1970s. Real wages will stay flat.
Have no fear, plutocrats! You'll have plenty of money from the new tax code to resume your stock buybacks and top-level compensation increases. There will be inflation and higher interest costs, though, thanks to that same tax legislation. Adding an economic stimulus to an economy already experiencing steady growth and low unemployment guarantees more inflation. On the bright side, you'll pay your higher labor costs with cheaper dollars.
The Fed has plenty of room to raise interest rates, of course, and plenty of motivation to do so. Rates have to be increased significantly, so they can be dropped again as stimulus when the next recession arrives. Other factors, including the irrelevance of the labor movement and the absence of any real competition among our corporate giants, make a wage-price spiral unlikely.
So what caused the slip in stock prices? Sorry, but it wasn't Trump — no more than it was Tr*mp who created the bull market. It's just that those computer algorithms that control a large majority of today's stock trades still are inclined to overreact to factors that human beings just don't notice. Program trading brought us the bull market, and it's the most likely suspect when things get weird.
You can stop looking for the man behind the curtain, Dorothy — he's gone.
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