Accepted Assumptions that are Wrong: A Healthy Stock Market Means a Healthy Economy

In Economics on March 20, 2011 at 19:51

Nobel prize winning economist Joseph Stiglitz explains the disconnect between the stock market and greater good when he said on Anderson Cooper’s show, “If we give money to the banks, the stocks will go up. That’s not what we’re concerned about.” (link) Well Mr. Stiglitz, apparently that’s all some people are concerned with. Media talking heads and free market economists see that stocks are doing fine and see a healthy economy. What they ignore is unemployment rates and stagnant wages, increasing poverty and income inequality as well as the increasing number of part time workers that want to work full time.

Americans outside the brokerage and banking industries, outside of the Forbes 500 and their cronies in D.C, are suffering. The stock market doesn’t gage whether average people are doing well, it is a gage of what speculators think they can make from betting on, or against, a certain stock. It is a false indicator of prosperity, unless you look at the holders and manipulators of large stock portfolios. Stock markets tell us what investors think, can be a catalyst, of sorts, for an economic down turn, but seldom is a rise in stocks an indicator of recovery. Was it an increase stock prices that got the U.S. out of The Great Depression? Helped by the new deal and brought forth with the need for labor in WWII, it was near full employment that got us out of the great depression. It was not tax cuts; in fact, taxes went up in WWII to pay for the war effort that brought us out of the depression. It was employment.

Overproduction of goods after WWI and buying on margin (public debt) led to the great depression, and the stock market was a symptom of the unregulated credit and lack of a European markets for ever productive U.S. industries. Overproduction of houses and other goods, over extended credit (subprime mortgages) and a lack of a market for the overproduction of housing led to The Great Recession we are still going through. Neither tax cuts nor a revived stock market will bring us out of it. Cutting the deficit will not help us in the short term either. Only jobs will bring us out of our current recession, and the hope for those jobs is not on the horizon with the focus on deficits and budget cuts. And if you care about deficits, make the tax evading corporations pay their share, end the wars and cut the military budget.

Every NPR news day begins and ends with a stock report. Reports on the health of the economy begin with how the stock market is doing. The economic indicator that is at the top of the government’s assessment for the end or beginning of a recession is GNP followed closely by the stock market.

The media’s over-reliance on short-term fluctuations in stock prices to evaluate policy initiatives or the strength of the economy is a symptom of that kind of the mindless short-term thinking that Obama complained about. (Ibid)

On a daily basis we hear that investing in the stock market is a way to make money. What about the trillions of dollars that were lost in the latest market bubble, this time in housing stocks and mortgage backed securities?

When the Dotcom bubble burst, the stock market lost an estimated $8 trillion dollars. That money is still floating somewhere in cyberspace with the pets.com sock puppet.  (link)

Then in 2008, the world stock values world wide dropped $30 trillion from a high of $60.1 trillion. Now, the markets have recouped about $20 billion of its value. That means nothing to the typical citizen of the world. The rise in values was for corporate investors who benefitted from the bailouts of the large investment firms like Citigroup and Bank of America.  Workers have lost 30% of their market investments, or $2 trillion in the recession. And I was told you couldn’t lose investing in the market.

What of the recent upswing in the market? Has that helped retired investors recoup their losses? How solid is that gain? If the stock market shows a healthy economy, why is official unemployment still at 9%?

There is a myth perpetuated by the purveyors of Wall Street that most people have money in the stock market and that everyone benefits when stocks rise. The fact is, the top 1% own 42% of all financial wealth in the United States. Furthermore, 93% of the financial wealth is held by the wealthiest 10%. (link) So, when the stock market increases, the wealthy owners of the major media outlets, where we get a majority of our news, do benefit. And it’s news because the owners and their investors see it as great tidings. For the 15 million or more unemployed in the U.S, it does nothing to bring prosperity.

The stock market is not the answer, only more jobs, public and private, will end this recession.

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More Market myths.

Tex Shelters

  1. I’m beginning to feel like the mythical Echo, hearing my own voice: “Good one, Tex!” I have been made a poor person. This is how I will finish my life. I and millions have learned that we can live this way. I and millions of others have learned what H. sapiens is made of. The rich and powerful and the poor and weak. A pathetic species with patches of displays of outstanding courage. Too small to change our course. I keep reading with a kind of drawn-to-the-calamity horror. I admire you for keeping the faith or staying the course or whatever it is you in fact or doing. I’m just looking.

  2. WHY WHY WHY WHY …..WHY WHY WHY …Do you keep blaming things on free market economics. AHHHH

    WE HAVE NOTHING …AND I MEAN NOTHING even close to anything that would even resemble a free market economy.

    Even this guy had just two brain cells in his head he could quickly use them to identify plain and simple fascism.

    Fascism and soviet era command and control policies failed, the free market did not.

    The final stake through the heart of so called free market happened in 1913 when we gave an enforced monopoly on the nations currency to a quasi public/private banking cartel.

    • Chris,

      I don’t think you are responding to what I wrote, just what you assume I might write. I don’t recall blaming the “free market” and I discussed the manipulation of the stock market. Unless you equate the stock market will all economic markets, which I did not discuss, I am not sure what you are commenting to.

      Criticizing the stock market doesn’t mean I want fascism or Soviet style communism. I am pointing out that the stock market is not a good metric of a healthy economy. That is all. If you wish to discuss free markets elsewhere, we can. Besides, I agree, the markets aren’t “free”, they are manipulated for the benefit of the few.

      Tex Shelters

      • “If we give money to the banks, the stocks will go up. That’s not what we’re concerned about.” (link) Well Mr. Stiglitz, apparently that’s all some people are concerned with. Media talking heads and free market economists see that stocks are doing fine and see a healthy economy

        • Chris,

          It’s not “blame” it’s pointing out the lies that the market mean a healthy economy. I don’t “blame” the stock market, but the subprime lenders, the banks, the mortgage brokers and the foolish Americans for taking the loans they were fooled into taking.

          The stock market is not a person, but there are people manipulating it and ripping us off while the government bails out the worst of the criminals.

          Tex Shelters

  3. And another thing, the stock market means nothing and is completely irrelevant to anything. If the stock market goes down interest rates will rise and you will hear about rich people making a fortune in the bond market.

    the rich keep winning because the poor are stupid and loving it.

    I mean personally… having everything stolen from me would make me a little angry. But not Americans.

    they will just turn on the tv drink soda, eat mcdonalds work minumium wage jobs until they cant afford to pay the cable bill.

    But im not worried im sure the gov will pay the cable bill for the slaves, if it keeps them of the streets.

    • Chris,

      That’s the point. People chime on and on in the news, on radio, and on television how important the stock market is to our economy, and really, it matters for the top 10%. The rest of us don’t really matter when it comes to stocks.

      Tex Shelters

  4. Accepted Assumptions that are Wrong: MSNBC is anti-war.

    Not on subject Tex but I’m a bit disappointed with the so-called holier than thou anti-war left.

    I was watching MSNBC yesterday and the only one on there that wasn’t a cheerleader for Obama’s war against Libya was Chris Matthews.

    Are you going to blog about Libya? I hope you don’t let me down.

    Take Care Tex, I hope all is well…

    • Jake,

      Chris Mathews is a huge Obama apologist. If Hitler and Stalin had been Deomcrats, he would have voted for them. No, I am not comparing Obama to Hitlers, but he’s a mindless drone like all the TeaParty members who vote for Republicans that want to take away their voting rights.

      There are anti-war hypocrites, that is for sure. But, bombing a few bunkers is different from invading Afghanistan, and we have actual evidence of what Gadaffi is doing.

      However, starting a war with Libya is as much about our national interest as staying in Afghanistan.

      Tex Shelters

      • I hear what you’re saying Tex, and I know about Mathews, yet he was the only one that was even asking questions about why and how.

        As far as the Libyan action, I’m against it.

        The ones we are protecting aren’t innocent civilians who are protesting the government, they have actually taken up arms against the government.

        I have no doubt what would happen if someone here in the US massed 10,000 armed people in an effort to topple the Obama Administration.

        Do you think the US should be subject to a no-fly zone for protecting itself against an armed rebellion? I don’t think so.

        I’m no survivalist nut nor am I a religious nut waiting for the end of the world or a new world order but look what happened in Waco, TX to some religious nuts the Government was conserned with.

        Our action in Libya is far more sinister than Afghanistan or Iraq.

        There is a Civil War going on in Libya and we have jumped in with both feet with our eyes closed and picked sides.

        BTW, I know Gaddafi is a bad guy but Hussein was far worse in killing his own people.

        It’s not about Gaddafi’s treatment of his people, it’s not about his past actions toward us (we normalized relations with him).

        It’s all about France’s and the rest of Europe’s Oil Supply and nothing more.

        I supported hitting Afghanistan, I was indifferent to hitting Iraq but this is getting old and I’m tired of being the worlds 911. It’s all BS!!!

        BTW, I was never for Nation building, I never thought we should stay in Afghanistan and Iraq after we took out the people in charge, that’s a job for the UN.

        Bring all of our troops home including the ones in Europe and Asia!!!

        One last thing since when if France puts their seal of approval on anything does it mean we have the support of the world?

        Wasn’t it France who dragged us into Vietnam?

        IMO that France is the last country I would take advice from concerning world affairs.

        • Jake,

          France has qualities worth emulating, but NOT it’s imperialism.

          “Our action in Libya is far more sinister than Afghanistan or Iraq.” Well, I am not going to compare bad wars. Both are nonsense, costly and counter productive.

          Hussein was partly our creation to fight the Iranian theolcracy, also a reaction to US imperialism. Gaddafi was an independent war criminal. One thing we can both agree on is that the more we meddle, the more we screw things up.

          Germany and Japan can defend their own damn selves, certainly.

          Tex Shelters

          • “Hussein was partly our creation to fight the Iranian theocracy”

            Well Tex, I never subscribed to the doctrine of “the enemy of my enemy is my friend”, after all didn’t we help Al Qaeda in our so-called “cold war” with the Soviets?

  5. Well France did ban the veil, so much for Cultural/Religious

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