Bill Knight column for Mon, Tues., or Wed., Aug. 31, Sept. 1 or 2
“The stock market is not the economy,” said economist Dean Baker, co-director of the Center for Economic and Policy Research. “The stock market has fluctuations all the time that have nothing to do with the real economy.”
Plus, missing in action in the coverage: paychecks. Where are the headlines, TV graphics and radio gab about the lousy level of everyday Americans’ wages?
Sure, the stock market last week had a six-day losing streak, following concerns about China devaluing its currency and lowering interest rates, suspicions that its 60 percent growth in stocks since January was a bubble, and worries about a general slowdown in its economy – which many see as trying to shift from an economy relying on exports to one producing for Chinese consumers.
Still, there are some positives. Gas prices are much lower than a year ago; home values are up; mortgage rates are down; inflation is low.
But wages are stuck.
The most recent Bureau of Labor Statistics show Real Average Hourly Earnings as $10.50, compared to $10.28 two years ago – a 2.1 percent in 24 months.
Meanwhile the stock market’s boomed. Even after last week’s drop, the S&P (as this is written) stands at 1,940.51 – 17.1 percent better than Aug. 26, 2013. The Dow was 16,285.51 – 8.9 percent better than two years to the day. The NASDAQ was 4,697.54 – 28.4 percent better than two years earlier.
Again, wages in that same span improved 2.1 percent!
Even comparing Gross Domestic Product (“the value of the goods and services produced by the nation's economy less the value of the goods and services used up in production, adjusted for price
Changes,” according to the Department of Commerce’s Bureau of Economic Analysis [BEA]), regular people got the short stick.
The most recent quarterly BEA report set GDP at $17.8 trillion – 7.2 percent better than two years ago.
That’s more than three times the improvement in pay.
“All of the growth in the economy has only been in the financial sector – only for the 1 percent,” said financial analyst Michael Hudson, president of the Institute for the Study of Long-Term Economic Trends and author of the book “Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy.”
“It's as if there are two economies, and the 99 percent has not grown,” Hudson told Amy Goodman on radio’s “Democracy Now.” “So the real problem is, stocks have doubled in price since 2008, and the economy, for most people, hasn't grown at all.”
Meanwhile, since most bonds now yield next to nothing, stocks became more attractive. However, most stocks in recent years weren’t purchased by investors, but in corporate buybacks.
“Ninety percent of all the earnings of the biggest companies in America in the last five years have gone for stock buybacks and dividends,” Hudson said. “It's not being invested. It's not building new factories. It's not employing more people.
“Most of the corporations in America are using their income not to do what industrial capitalism did a century ago – not to build more factories and employ more people and make more profits – they're just using it to pay dividends and to buy back their shares and to somehow manipulate the financial sector in the stock prices, not the economy as a whole.”
Besides better news coverage, there should be better policies. U.S. economic woes stem from weak demand. Consumers aren’t spending, with stagnant wages and scant savings. Responses could be boosting trade or using government. Trade is difficult to improve without a lower-valued dollar (and other economies are even weaker). So a reasonable approach would be to spur government spending on infrastructure, schools, health care, sustainable-energy projects, etc.
Or: Employers could raise people’s pay.
“The stock market is not even in principle supposed to be a measure of economic activity. It is supposed to represent the present value of future profits,” Baker said. “This means that if people are expecting the economy to slow down, but also expect a big shift in income from wages to profits, then we should expect to see the market rise.
“So there is no sense in treating the stock market as a gauge of economic activity,” he added. “It isn’t.”
[PICTURED: Graphic from Independent Report.]