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The Stock Market Is Not the Economy


#1

The Stock Market Is Not the Economy

Dean Baker

We are seeing the usual hysteria over the sharp drop in the markets in Asia, Europe, and perhaps the US. (Wall Street seems to be rallying as I write.) There are a few items worth noting as we enjoy the panic.

First and most importantly, the stock market is not the economy. The stock market has fluctuations all the time that have nothing to do with the real economy. The most famous was the 1987 crash, which did not correspond to any real-world bad event that anyone could identify.


#2

This may be too complex for the average American to fathom.

After all, we've been seeing talking heads debate and fret over the stock market daily since the first television "news" programs appeared when I was in grade school.

When we see the "good" news that the stock market is "booming", it's generally only good news for Wall Street and the elite of the MIC...and more people drop into the poverty "class" every day worldwide.


#3

So the Stock Market is not an index or indicator of the aggregate of companies that are represented on it. It is just a device to create money out of thin air based on projected profits, which in turn are based on future market activity.

The markets in the future are obviously projected to be a whole lot better than the current markets, because, just by the sheer numbers in population growth, resource usage and production, there will be far more consumption and sales to the starving wage laborers.

The Chinese stock bubble is misrepresenting their bubble far more than we are.

The Chinese economy, by which is meant its ability to generate consumption for profits, is slowing down quicker than anticipated, and therefore the Chinese national bank has to devaluate its currency, and "infuse money" - fake fiat - into its economy, which is not represented by its crashing stock market.

We cannot buy stuff anymore because we are up to our ears in debt, because you know, we just have to survive, so the government should spend the this fake fluffy stuff, so someone can say that we are solvent. Never mind that we our basic support system, on the strength of which we are called developed nations, needs some serious attention.

I maybe completely wrong, but that is what I read.


#4

In the 1980's as a programmer I worked on a handicapping program for a friend who was an expert at betting on the horses. A lot of the betting was not on the horses running the race but rather on the bets themselves. Yes, at the start you just had the racing form and the list of races, finish times, distances, drugs (yup), dates (how long since last race), conditions and so forth to work with as data. This was about the horses running the race that day. Then you factored in the bets to calculate the possible payoffs and that will change the betting. You might get more money betting on the horse for third place than for first depending on odds. In any case you come up with a "Dutching" strategy of betting various amounts of strategically limited money. But at some point the actual contribution of the horse gets lost in all the figuring.

The reason is that the idea is not to put down money on a horse showing approval or not, the idea is to make money from all the money being put into the system. In other words there are a small number of winners thanks to so many losers, many of whom actually think they are betting on horses (lotteries are massively worse).

I look at the stock market and see horse betting on steroids. There is almost no consideration at all to the value and sales and potential of a company. It is all betting on bets which are on bets which are .... (keeps going like that). It is an artificial world removed from actual production and sales and need. The market players could care less about the company and its people and employees. They don't invest in companies, only stock numbers. And yet, even as I write this, I am listening to "public" radio as some fool reads a stock market story talking over-earnestly as if the stock market were indeed the economy. The title of this piece is something I've said for many years and it could not be more descriptive.


#5

At least Baker in this piece gives the very slightest nod to the dis-integrating ecology, when he includes "green energy" in his recommendations for demand-stimulating government spending.

But he still, frankly, seems to have no real understanding that "the economy" is dis-integrating the ecology... and that this stark fact should be extremely important to his profession!

We don't need more Keynesian demand stimulation. We need a massive shift away from the most destructive industries and products, and a disempowerment of "investors" over the economy, with a sturdy rampdown toward economic activities and investments that sustain ecological integrity. That has got to be the top priority for economists, policy-makers, entrepreneurs, consumers, agitators... for everyone.


#6

And then there are the after-markets in complex derivatives of various kinds, supposedly accounting for so many trillions of dollars worth of booked "value" that they dwarf the Gross Global Product. So much chimerical "value."


#7

I feel a brain fart coming on, here. You're right, you're right, you're right. Humanity needs to intercede to stop "economics" (such a lovely term if it only were revered in its rightful definition). How many planets are there for us? One, as I count. How many do we need? Oh, shit, now I know the reason for "Depends".


#8

I'd love to read a longer version of this. Ever thought about stretching it out to an essay, on Medium or a blog?


#9

Economists tend to be unanimous that deficit spending to stimulate growth is government paying for things like ... "infrastructure, education, healthcare and green energy."

The problem is reality; US citizens actually used deficit spending to kill 1,200,000 Iraqi citizens who had nothing to do with attacking the US.

Deficit spending by governments destroys democracy by letting government employees do things living voters would not pay for.

The second argument against deficit spending is environmental. Government deficits stimulate artificial growth and destroy the environment. Deficit spending is used as a pump primer to stimulate artificial consumption beyond the four Earths required by the US economic consumption level.

The riddle of our times is how to avoid specie suicide with excess spending on corporatist products like war and plastic fantastics that destroy Earth and democracy. When economists face reality they will have something real to say. Where on Earth is there an actual uncorrupted government that does not spend deficits on corporate cronies, police control and war?


#10

It's fun to watch the hysteria though. I am sure the Feds will try to do something,anything to calm the hysterical people down. How about a 10,000 point drop in the dow industrial index? What oh what would all those Wall Street people do?


#11

Paul Craig Roberts, Gerald Celente, and others have predicted a major implosion of the global economy. Where Mr. Baker appears to be tasked with offering a pep talk (shades of the wait-staff on the Titanic insisting that everything is under control, that passengers just remain calm), he only focuses on China.

In reality, as the biggest producer of late, China was importing lots of copper from Chile and its reduction in demand is impacting Chile. Gerald Celente--with facts in hand--also shows that the value of the currencies of Brazil, Canada, China, Russia, and other important nations are down to levels from 8-15 years ago. This recession IS global. Factor in Russia's problems over oil prices, and how falling oil prices (good for Mother Earth!) are impacting Canada and Venezuela and the Arab States; and the stock market perturbation is just the beginning.

Most things were over-valued and inflated in the same way that allowed for a prior real estate bubble. The "correction" has begun, and it's not going to be pretty. As Mr. Celente points out via his "Trends" periodical, lots of layoffs have begun and will continue.

Sample:


#12

FWIW, Celente has been repeatedly and spectacularly wrong in many spectacular predictions. If that matters.


#13

Our current economy is based on ever increasing consumption. That translates into an ever increasing pace in which companies extract every, last resource with absolutely no regard for the environmental consequences. Even Robert Reich and Paul Krugman talk about the need to "increase consumer spending" as if we have no other options. Instead we should have an economy based on sustainability rather than consumption, but this is anethema to investor capitalists. I don't see the 1% giving up their quest for more and more wealth in exchange for a clean, green sustainable planet without a fight to the death.


#15

i'd like to get Dean Baker, Robert Reich and Paul Krugman in a room with Hazel Henderson, Winona LaDuke and Vandana Shiva for a couple of days of discussion.

See if they don't come out with a new respect for the ecology that is the base of the economy.


#16

Not having studied economics, I thought this article was enlightening until I read your and other posts here, which put it all into the proper context: What kind of economy weaves into sustaining life on Earth and supporting democracy rather than plutocracy?

Thank you, thank you those of you who insist on speaking up for the proper context, which allows our heads to begin to reconnect to the rest of our bodies, allows us to admit that we do actually need a healthy and peaceful planet for our children if we want to see them prosper.

Poverty (insufficient resources to support oneself adequately and simply enjoyably) seems to manifest alongside affluence (resources wasted on indulgences/addictions beyond what one needs, and can truly enjoy, to support oneself adequately), and the more extreme the affluence, the more extreme the poverty alongside it (or in another corner of the world from it but directly linked to the extreme affluence). This arrangement seems to be a root cause of war and ecocide. So would it be reasonable to endeavor to shift towards social economies, ways of living, that cease to create and maintain both affluence and poverty? Those of us with extra money (affluence) can do this on a one-person level ourselves by giving it away to those people and beneficial projects in need.


#17

"... would it be reasonable to endeavor to shift towards social economies, ways of living, that cease to create and maintain both affluence and poverty?"

Yes! Not just a minimum wage, but also a maximum income. Not just a poverty floor, but also a wealth ceiling.

And as Gar Alperovitz writes extensively about, structure the ownership of the economy not by accumulating shares of autocratic corporations in a falsely-titled "free" market, but by distributing shares of genuinely democratically controlled municipal corporations (like public utilities), worker and community cooperatives, and (appropriately limited) nonprofit trusts.


#18

Ultimately, the idea that money and the economy are important for us all is a con trick to keep people frightened and thereby subservient. And of course it works because, if you're really broke you can only steal and risk the consequences of being caught (trying to stay alive), or go hungry. But for those at the top the money is just a power tool that feeds their ego games. What matters to them is not the economy or the money but the continuation of inequality... which is of course promoted by debt creation. So-called wealth creation is just a reflection of the time and place where they choose to locate their next exploitative venture.


#19

To preserve the balance of nature, no organism can hoard more resources than what it can defend. Money allows unlimited resource hoarding, destroying the natural order.


#20

You may want to read Dr. Baker more often at www.cepr.net. He's no cheerleader for capitalism. His analysis is sober and data based. Dr. Baker was one of the only economists to identify and sound the alarm early on the housing bubble, the bursting of which was the catalyst for the latest capitalist crisis that started in the US in December 2007 and ended in June 2009.

http://www.nber.org/cycles/cyclesmain.html

There's no official US recession using the NBERs definition which is two consecutive quarters of falling RGDP, i.e., negative RGDP growth. The US RGDP grew at a 2.3% annualized rate in 2015's second quarter. US RGDP grew 11 out of the last 12 quarters.

Next, falling oil prices are good news for the working class because it allows them to use income that would have been spent on gasoline to be spent on something else, i.e., an increase in real income all else constant. However, they're bad news for Mother Earth because almost every economist agrees that lower energy prices encourage consumption and the opposite.

According to the official RGDP statistics compiled quarterly by the BEA of the DOC 11 of the last 12 most recent quarters had positive RGDP growth. This is far from the official definition of recession. Now the distribution of that growth in output/income is an entirely different matter.


#21

I think he's been right a lot more times than wrong, and when you compare him with the voices that play the economy, write the rules of engagement, set up the bailouts, and LIE that all is going well... Celente stands MILES above the rest. I disagree with Alex Jones on lots of things, but he provides a platform for Celente and others and they are FAR more honest (and informed) about global financial trends than anything propped up by the mainstream media.

Oh, and while you try to talk a good game that sounds like you care about the environment, where is your PROOF to back-up the specious allegation that Celente has been wrong more frequently than correct?

I think you're trying to bash his reputation (as you often attempt to bash my own) in order that honest readers not look into the clip I posted or pursue what this individual has to say. That is fair-minded or Progressive?