STOP using the Stock Market as a measure of how well the economy is doing

[ck4829]

Using the Stock Market as a measure of the economy is fine...

IF you live in a Corporatocracy.

The Stock Market doesn't show us the condition of the poor or the middle class, it just shows us how the corporations and the people who are holding the stocks are doing, and that is why I refuse to listen to people who say that the economy is doing well or poor and base this off of how the Stock Market is doing.

Plenty of Liberals do this, of course the economy is sour because of Bush, but will we know the true plight of the poor based off of the Stock Market?

NO!

We need to get the US to look at the Gini Coefficient. We'll truly get to look at how well or how bad our economy is doing.

[catmandu57]

1. The stock market isn't the economy

most people don't understand that, the market is no more than a casino with people winning and losing.

[ProfessorGAC]

3. Absolute Mathematical Truth

The economy affects the stock market in somewhat predictable ways. The stock market NEVER affects the economy.

So, really strong economies make the market rise, really weak economies make the market rise as speculators begin hedging for the future. But, markets going up or down never take the economy with them. Hence the market gains from 1989 - 1991 in the midst of a classical recession, and the market gains now in the midst of a statistical recession.
The Professor

[Village Idiot]

10. "somewhat predictable?"

This qualifies as "Absolute Mathematical Truth?"

"markets going up or down never take the economy with them???" Yup - THAT'S never happened, like in 1928, for instance...or 1987.

I will confess - I know very little about economics (The more I find out, however, the less I want to know) but apart from the last sentence, your post makes little sense to me.

[ProfessorGAC]

12. That's Strictly On You

The post's points are obvious. The market did not cause the economic crash in 1928, so your admitted lack of economic knowledge is showing.

The market was hyperinflated far beyond any reasonable linkage to the economy. The value of the individual instruments within the market were never based upon the financial condition of the associated firms, nor were the economic conditions of growth, advance of real wages, or employment levels. In addition, the market was being used as a huge money laundering device for bootleggers, so the market was oversaturated with cash, but floating on an unsupportive economy. So, the market didn't take the economy with it. The economy caused the house of cards to finally collapse.

Same as in 1987. The market valuation was not supported by the overall strength of the macroeconomy. So, once again the issue was one of a market that was disconnected from the economy, and the economy took the market with it, not the other way around. That's strike two.

For strike three, you obviously don't know much about statistics either. If you did, you would know that a "somewhat predictable" correlation of market to the economy, and an uncorrelated relationship in the other direction would be a mathematical truth. In one direction, one CAN somewhat support the prediction. In the other, (markets affecting the economy), one cannot. That's the mathematical truth.

Read a little more carefully next time, please.
The Proressor

[Village Idiot]

16. Not particularly obvious to me.

I am neither economist nor statistician,(though I don't believe this fact makes me necessarily incorrect) however. Merely because you state (and more than a little smugly, too - tsk, tsk, tsk!) that something is obvious does not make it so. Perhaps, as a layman, I see causality where only correlation exists, but I remain unconvinced by your arguments.

I haven't seen a period since the Depression where the market was NOT hyperinflated beyond any resonable linkage to the economy (this is hyperbole, actually - I am pretty sure I must have missed or ignored one somewhere - more exception than rule, however), yet I have seen, in my own lifetime, conditions where even small market and/or currency fluctuations completely COLLAPSE particularly vulnerable macroeconomies. Even indirect correlations can affect seemingly closed/unrelated systems - particularly where market/currency intervention is involved. Take a look at the 1998 Brazilian economic collapse vs. 2001-2 Argentina: Only Argentina had a "pegged" curency, yet BOTH economies sank faster than the Edmund Fitzgerald - even after repeated IMF interventions to "prevent hyperinflation." Even with comparatively low import economies, domestic devaluation could not save the Argentinian economy or prevent the rapid rise of inflation (widespread domestic currency speculation did not help, either). It seemed to stave it off for a while in Brazil, however (some economists believe that the devaluation of the Brazilian real actually helped bring the economy back faster than it otherwise would have), so the big boys could safeguard their asses and assets. Two similar economies, two similar solutions, yet completely dissimilar and unpredictable (at least as far as I can see) results.

I can accept that a DIRECT correlation of market to ecomomy and an uncorrelated converse relationship may represent a mathematical certainty, but I find it difficult to accept the same assertion for merely a "somewhat predictable" correlation.

Perhaps this is why I find economic theories so baffling/trying - the staggering amount of interrelated variables and "once-widely-accepted-but-now-scrapped" ecomomic theories make it seem more like "witch doctory" than mathematical or statistical science to me.


Thanks for the reply, though. It is certainly something I will have to look into further - but chances are it will only confuse me further.

[ProfessorGAC]

18. Yeah, I Was Too Smug

First, don't be so confused. You've already grasped the interrelated aspects of so many inputs. The only real trick in modeling is being able to prove which are inputs that cause and outputs which are effected. And, the math is the proof.

The "accepted-but-now-scrapped" is part of what i do! Every paper i've ever published has to do with using mathematics to disprove some aspect of conventionalism, because i don't believe in economic theory, only in economic hypotheses. They are constantly under test and the economy is always changing. It's not like cosmologic theory, because the base structure of the universe is unchanging. People don't affect it. But, the darned people and their behaviors, expectations, and actions always change both the scope and nature of macroeconomies. So, i think you're overbaffled by that, too! We're supposed to be challenging conventional wisdom and finding better ways to explain the movement of certain aspects of macroeconomies. The falling away of older ideas is PERFECT! You're not baffled by that! You get it!

Lastly, you missed a couple of point on the hyperinflation issue, because remember that an economy is not hyperinflated if the overall basis of the market value is equivalent to the asset base and financial potential of what is in it. So, there have been several periods of economic stability where the market wasn't inflated, like the period 1952 - 1956 and 1961 - 1966. (The very early 90's too!) And, for instance right now! The market is not inflated right now. It would be if we started throwing tons of social security money at it. Then the money would be absorbed by an equal amount of value, driving up prices without any supportive economic or financial growth. But, your example of South America is valid, but we would disagree on the predictability of the outcomes. The IMF interventions were a classic example of overcontrol and basically had zero long term effect on the outcome. It was strictly a bandaid on a hemorrhaging wound and was never going to work. Of course, conventionalists run the IMF, and the Fed, and the World Bank. So, of course, their ideas are bound to fail.

But, you understand this stuff better than you think. You at least understand that static, two dimensional theories of economics are likely not going to explain how it really works.
The Professor

[YOY]

2. The poor don't and can't invest

The investments include global ventures.

Better marks of the health of the economy the standard income as well as the unemployment rate IMHO (not to mention the balance of payments.)

Therefore I agree

[Spazito]

4. Agree, it has little to do with the health of the economy

and much to do with the working of a casino only less honest, lol.

[Scott the Wise]

5. Disagree

The majority of people have stocks in 401's.
The problem with the Gini coefficient is that it doesn't taking into account investments or savings for retirement.

[arachide]

7. Nope! The majority of people

do NOT have 401K's. That's part of why we keep saying that the stock market isn't an indication of how the average individual is faring.

And even if we DID have 401K investments, they don't do the under retirement age individual a stinkin' bit of good...

[JNelson6563]

13. In what world??

The majority of people have stocks in 401's.

I'll give that a 10 on the clueless Statement Scale.

[robcon]

14. The majority of workers have defined contribution retirement plans

401k's are one of the primary methods of defined contribution plans, although many companies and government agencies have their own defined contribution plans. 60% of workers have one of these plans (less than 15% of workers have a defined benefit plan that does not depend on the stock market to define their retirement benefits.)

Defined contribution plans are very heavily invested in the stock market. The growth or decline of the stock market has a huge impact on the retirement benefits for 60% of workers.

http://www.bc.edu/centers/crr/facts/jtf_13.pdf

[JNelson6563]

15. According to Best Democracy Money Can Buy

by Greg Palast, at the time of going to press his book quotes a source that states out of the $3.4 trillion in stocks etc., $2.9 trillion is owned by the wealthiest 1%.

Julie

[Jack Rabbit]

6. Thank you

If wages are falling and good jobs are being moved overseas, the average American is not benefiting just because the Dow is at 11K. It means nothing to most of us.

Plenty of Liberals do this, of course the economy is sour because of Bush, but will we know the true plight of the poor based off of the Stock Market?

That is another reason why I prefer to describe myself as a progressive rather than a liberal nowadays. One should wish that the term liberal elitist were an oxymoron, but alas it is not. If a liberal policymaker proclaims he knows what's best for the masses and devises a social spending program without consulting those who will allegedly benefit from it in order to see what their needs really are, then he is being as much an elitist as a conservative implementing irresponsible tax cuts in the name of supply side economics or some similar discredited theory.

[bullimiami]

8. the stock market has been basically flat for the entire bushco regime.

how could anybody look at the markets performance as a positive?

[European Socialist]

9. If we had a good economy, Chimp approval wouldn't be 34%.

[magellan]

20. Exactly. Most Americans react to their own personal economic situation

...not to what the bloody stock market says.

For the majority of Americans the stock market is good for one thing: letting us know how well the economy is doing. BushCo has been fudging those numbers for years in order to give us a false sense of security (i.e. "all's fine, keep spending") and to defuse disapproval of their handling of the economy. It's been well-played but they were never going to hide the truth forever...People know when their dollar isn't going as far as it used to. They're catching on now -- too late for sure, but it's one of the reasons Bush**'s numbers are tanking.

[AndyTiedye]

11. Even The Stock Market Has Not Been Kind to Bush**

The stock market is only a portion of the economy (reflecting the value of publicly-traded
businesses).

The widely-quoted Dow Jones Industrials Average is only a small portion of the stock market,
which is heavily weighted towards large corporations, especially oil and war related ones.
Even that is barely where it was when Bush** took office. A pathetic performance for the Dow.

The broader market indices have fared far worse, having lost half their value or more.
Even that does not capture the extent of the damage that Bush** does to the economy,
but it is still worth pointing out, when people use the stock market to keep score.

Economically, Bush** is the second coming of Herbert Hoover, and even the stock market
shows that if you look at the broader indices.

[LisaLynne]

19. Yeah, exactly.

Just because the talking heads on TV keep saying that the economy is doing great because of the preformance of the stock market doesn't make it true.

[Yavin4]

17. In the Age of Globalization, The Market Is Even Further Removed from

reflecting the American economy. If an entire industry can save billions by locating its production facilities overseas, then the market will reward outsourcing with higher stock prices. However, such a move will be detrimental to the U.S. economy as thousands of workers will lose their jobs.