Wayne O'Leary

More Market Madness

There was Valerie Jarrett, senior Obama advisor, on the March 6 broadcast of MSNBC’s Politics Nation with Al Sharpton, hailing the latest stock-market surge as unqualified good news and evidence of the president’s successful economic policies. She was not alone. Market optimists, breathlessly enthusiastic as the Dow Jones industrial average blew past 14,253 and into record-high territory the previous day, its best performance since before the 2008 financial crash, agreed that the worst was behind us and the best was yet to come.

A comment in the New York Times said it all: “The fear that not long ago paralyzed the markets has lifted.” Pump your fist and jump for joy; irrational exuberance here we come! Superficially, it may seem as though we as a nation are about to revisit the good times (in memory at least) of years past, that lost world of booms and riches and jobs galore, and to celebrate capitalism American-style as one of the Creator’s great gifts to mankind. But on second thought, hold the champagne.

This remembered capitalist nirvana, members of President Obama’s inner circle should well know, never existed; the system was never fair and broadly inclusive in its rewards, and it’s far worse now after passing through its self-ignited inferno. The rise of Wall Street’s malefactors from the ashes of their own financial immolation, with the help of federal emergency funding (minus any strings attached), changes nothing; if anything, it confirms that the game is rigged.

Let’s look at what’s been going on in the real economy compared to the stock market — Main Street versus Wall Street — over recent times. As economists measure recessions (two or more consecutive quarters of declining gross domestic product, or GDP), the Great Recession began at the start of 2008 and officially ended in the spring of 2009. The downturn lasted a lot longer for most Americans, and for some it’s still a destructive work in progress; nevertheless, those are the parameters marked out by the dismal science, which says we’ve been in a “recovery” for nigh onto four years. During that time, the value of the stock market, as exemplified by the Dow’s 30 prominent firms, has approximately doubled, but the real economy, represented by the GDP, has grown only a cumulative 7%.

The deceptiveness of the stock market as a measure of economic health is even more apparent when compared to job growth. In the four recovery years of March 2009 to March 2013, the Dow rose 105%, while total unemployment fell by less than 5%. At the present 7.7% jobless rate, we are nowhere near the 5% “full-employment” rate that prevailed at the beginning of the Great Recession, but the market is well beyond its previous record high, set in the heady pre-crash days of October 2007. Significantly, out of 8.7 million jobs reportedly lost during the downturn, just 5.5 million have been replaced, a shortfall of 3.2 million, and as former Labor Secretary Robert Reich reminds us, 1.5 million new jobs are needed each year just to keep pace with population growth.

Other means exist besides raw employment data to puncture the inflated claims on behalf of the stock market’s role as arbiter of our economic well-being. Take wages, for instance. Average private-sector earnings in the US have been roughly static for the past half-decade despite a rising market. This is nothing new, of course, and it’s not entirely coincidental — low wages equal high corporate profits equal enhanced stock prices.

Berkeley economist Emmanuel Saez has calculated that the average incomes of 99% of Americans rose only 2.4% per year in the 1990s and even less (1% per year) in the early-to-mid 2000s; meanwhile, earnings for the top 1% in income averaged 11% in annual gains throughout the period, which was characterized by a booming stock market that increased its value by two-thirds in less than 10 years before collapsing with the 2008 financial crisis and recession.

In light of the euphoria accompanying the recent stock-market rise, which somehow doesn’t seem to be translating into good times for average Americans (Surprise!), it may be worth examining just who that surging market actually benefits. Washington Post reporter Neil Irwin, citing data from a 2010 Federal Reserve Board survey, provides a partial answer.

Among families then in the top 10% of income, Irwin finds, 48% owned stocks directly, and 90% held stock-related retirement accounts. Among middle-class families in the very center of the income scale (the 40th to 60th percentiles, or the middle one-fifth), only 12% directly owned stocks and barely half had retirement accounts. More striking yet, the high-income households owned accounts worth a median of $277,000; the median for their middle-class counterparts was less than $23,000. Under American capitalism, we’re all created equal, but some are obviously more equal than others.

The question is, if the stock market is only benefitting a select few, why do we obsess over its fluctuations? Fundamentally, it’s because those who do benefit are the most powerful people in American society — not just corporate CEOs and the idle rich, but members of Congress, a substantial portion of whom (half of all senators) are millionaires with extensive portfolios of their own. They have a vested interest in boosting the market (through regulatory and tax policies) and persuading the mass of Americans that it’s important to them, too.

There are far better ways to provide broad-based economic security, one of which would be to restore the 750,000 public-sector jobs eliminated since Barack Obama took office four years ago, principally at the state and local level, and mostly by anti-government Republicans. Current estimates are this would drop the unemployment rate to 7.1%. The late federal stimulus had preserved many of those jobs in 2009-10, but now they’re disappearing en masse. Replacing them will necessitate renewed federal spending, since cash-strapped states are constitutionally forbidden to deficit finance — a welcome excuse for Republican austerians, who wouldn’t do it if they could.

As for the stock market’s chief beneficiaries and cheerleaders, they are responding to what John Kenneth Galbraith once called the basic speculative impulse, which is, he said, “to believe whatever best serves the good fortune you are experiencing.”

Wayne O’Leary is a writer in Orono, Maine, specializing in political economy. He is the author of two prizewinning books.

From The Progressive Populist, May 1, 2013