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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

March 6, 2013 at 10:20 AM

The Dow and our great divergence

The Dow Jones Industrial Index is a great indicator of the great divergence facing America today. The Dow hit a new record on Tuesday — although adjusted for inflation, it’s still below its 2000 level — and was still rising this morning. The index has its critics simply as a market measure, but there’s no doubt that thanks to easy money from the Federal Reserve and record corporate profits, the stock market has enjoyed a good four years. So much for Obama “socialism.” Meanwhile, unemployment remains stubbornly high, middle-class wealth is devastated from the housing crash and years of stagnant wages, while economic mobility is largely stuck. The hangover from the Great Recession includes a $1 trillion gap in output. Nearly 48 million are on food stamps. Political paralysis makes it impossible to engage in the stimulus, especially infrastructure spending, that would help. Instead, we’re doing austerity, which has failed across Europe.  Naked Capitalism comments:

The Fed has been trying to reflate asset values to goose the real economy. What it has done instead is goose the incomes of the top 1% while everyone else is on the whole worse off. But the central bank is suffering from a very bad case of “if the only tool you have is a hammer, every problem looks like a nail” syndrome. It’s unwilling or unable to admit that its program is working only for a very few. It has convinced itself that if it just keeps on the same failed path long enough, things will turn around. As we can see from Japan, “long enough” can exceed 20 years, and it is not clear that the latest Japanese pump priming will finally pull the economy out of the ditch.

Stock ownership is heavily concentrated among the wealthy. About 21 million households own stocks directly. Most own stocks indirectly, through mutual funds, often from their 401(k) accounts, many of them small. According to the Investment Company Institute, an industry group, 44 percent of American households were invested in mutual funds in 2011 vs. a record 45.7 percent in 2000.

For this group that isn’t wealthy, that makes most of its money from wages rather than investments, the calculus is complicated. Each wears several hats: Investor, shareholder, employee, “consumer” and citizen. They often conflict. For example, that merger that makes the Dow go up might also cost you your job. Your vote by buying as a “consumer” might help proto-monopolies buy votes in Congress to further the power of the oligarchs, to your disadvantage. Meanwhile, you wonder what happened to that locally owned small business. And given the composition of most jobs being created now — part-time, few benefits — many Americans don’t wear so many hats.

And that’s if you can get a job. The shortfall between payroll employment and the number of jobs needed to keep up with growth in the labor force is 9.1 million. That’s a more important data point than the Dow.

And Don’t Miss: Three ways to bring manufacturing back to America | Washington Monthly

Today’s Econ Haiku:

Microsoft, EU

Eurocrats breaking windows

Will they search Google?




Comments | More in Investing, Jobs/Unemployment, Stock market


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