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World Association of International Studies

PAX, LUX ET VERITAS SINCE 1965
Post Stock Indices and the Economy
Created by John Eipper on 05/06/13 7:30 AM

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Stock Indices and the Economy (Tor Guimaraes, USA, 05/06/13 7:30 am)

John Eipper's commentary on Istvan Simon's 5 May post included, "The Dow is a good yardstick for the overall health of the market, yet it does not guarantee the performance of any individual stock. In the meantime, the Dow is at the doorstep of 15,000. I think that if it hits 16K anytime soon, Istvan will be the one proven right."

Indeed, in general the Dow is a fairly good yardstick for the overall market (the S&P is significantly better), but Istvan originally was mistakenly linking the Dow to the US economy and the health of the US middle class. In my earlier post I explicitly recognized that the Dow might reach 16,000. However, if such Dow levels are achieved because of stock buybacks and other gimmicks stemming from too much cheap money with no productive investments, this is not good for the US economy in the long run.

Therefore, if John Eipper wishes to declare a winner, let it be based on something more beneficial to the American people, such as employment, personal income, or even GDP. Anything more directly related to the US economy and US middle class standard of living than the Dow Jones.

Meanwhile, instead of repeating the same mixed evidence from the Wall Street article, I would like to hear Istvan's rosy glasses explanation for "how it now takes two spouses working to equal the wages of a one-income family of 40 years ago." Also regarding "wages have plummeted so low that a two-income family is now (on average) 15% poorer than a one-income family of 40 years ago. Using the year 2000 as the numerical base from which to 'zero' all of the numbers, real wages peaked in 1970 at around $20/hour. Today the average worker makes $8.50/hour--more than 57% less than in 1970. And since the average wage directly determines the standard of living of our society, we can see that the average standard of living in the US has plummeted by over 57% over a span of 40 years." I would say that a standard of living measure is much more relevant to the economy and middle class living conditions than the Dow Jones.

http://www.thestreet.com/story/11480568/1/us-standard-of-living-has-fallen-more-than-50-opinion.html

JE comments: WAIS is not about picking winners, but I'll agree with Tor Guimaraes that the stock indices are only part of the economic picture.  But are working-class families materially worse off than in 1970?  Certainly they have far more stuff (cell phones, computers, several TVs...).

In his address yesterday at Adrian College, Senator Carl Levin stressed the need to distinguish between "principled stands" and "blind confidence" in the certainty of one's views.  These words of wisdom for our graduates were an oblique reference to the gridlock going on in Washington, but I'll take them as sound advice for WAIS discussions, too.

A report on Sen. Levin's visit is forthcoming.



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