I’m of the opinion that we pay way too much attention to the stock market. While news hosts and twitterers obsess over its fluctuation, it isn’t the end all, be all sign of our economic health, although there’s an upside to having us think so.
If a person were to take 45’s series of tweets about the ballooning of stock market increases several months ago, they’d think that our economy was just booming! From his POV, the stock market could be seen as the key indicator of the health of our economy. Twitter is alive the past couple of days with all kinds of people wondering why 45 isn’t claiming the credit for the current downswing due to his wag-the-dog trade war.
There are some issues with this growing stock market fetish. First and foremost, the stock market is a whimsical, flirtatious, flippant animal that I personally hypothesize would literally react to the fluttering of a butterfly’s wings. It’s not to be trusted as a key or sole testament of health of the economy. That’s probably why the holy grail of “leading economic indicators” consists of ten elements, the stock price of the 500 most common stock being only one. In other words, those stock prices (not overall shares of market trading, mind you) make up merely ten percent of our economic picture. It is NOT the entire picture, but….
In our financialized economy, fawning over the stock market as if it were a pet is exactly what we should expect. One of the three principal impacts of financialization is to “elevate the significance of the financial sector relative to the real sector” (Thomas I. Palley). Take a look at retirement options. Where pension plans were the golden egg for our grandparents, our retirement is bound to the stock market via 401ks. When news of a plummet in shares directly affects our future livelihood, of course we’ll pay more attention to how well (or not) the market is doing, thus giving the ‘pet’ more attention than it deserves. Having our retirement tied to market performance subtly allows us to become more willing to listen to boardroom executives talk about loosening Wall Street regulations (Hint: Wall Street needs regulations.) We’ve converted entirely from being interested in the next widget coming out to being obsessed with how well the stock is performing for the company making the widget, a definitive impact.
Taking the idea of elevating the significance of the financial sector to a deeper level, examine the cause of the balloon for which 45 so bravely took credit. Most of the increase was due to corporate buybacks of their own stock, sitting in an imaginary account somewhere in Manhattan. The process means that shareholders rejoice in the growth of their portfolio while the wage earner is paid the same so there’s a zero increase in the amount of actual circulating dollars.
We’ve slowly warmed to the idea that the stock market should be some golden calf whose health reflects the entire economy. While the supposition accurately depicts an financialized economy, it’s imperative to remind ourselves that there are other factors that paint our overall fiduciary picture and they deserve equal consideration. We can’t afford to be short-sighted.