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November 20, 2013


As I write this, the Dow has penetrated but then retreated from the 16,000 mark. Those who shuffle paper for a living are concerned that we may be into a stock “bubble” and that the only way from that never before attained high mark is down.  Some of such pessimists see the Dow going over the cliff in an historic correction while others see a glide downward to correction. (They cannot know this from experience, because they have never experienced such a Dow.) Others say we have just begun and are looking for Dow highs far in excess of 16,000.  We have to keep this market mystique going, because after all, without uncertainty of investment gain or loss in the market there would be little incentive to trade – and trading is the bread and butter of the paper shufflers (aka Wall Street).

So what does all this mean in the real economy where people work, produce things, provide services and are otherwise involved in productive effort? Not much. It used to be that the Dow was sensitive to our real economy; that as our economy went, so went the Dow. No more. Globalization of both production and cross-border capital movement has removed much of such sensitivity. I don’t know what all is involved in a Dow of 16,000, but I do know that the performance of the American economy is now only one the factors we need to consider in explaining the paradox of how we can have a Dow of 16,000 and near-recession in this country at the same time, a loss of productivity never to be recovered.

The connection between the size of the Dow and the performance of the American economy is at best tenuous. Some of such connection (if any) may be expressed negatively. American corporations doing business in America may thus in part have better Dows because they pay starvation wages to their workers, and with the destruction of labor unions via right to work and other such labor suppression acts, the future for their bottom lines is encouraging. Since American labor is so cheap these days, it may be that American corporations in their race to the bottom will decide to operate in this rather than the global economy. That’s the good news; the bad news is that labor will be poorly compensated.

I heard an interview with an English-speaking Japanese Toyota executive on television some time ago who was announcing a new factory to be built in the United States. When asked if Toyota were building its new plant here so that its products could be manufactured closer to its market, he replied that that was not the reason. He said it had to do with the cheaper labor costs here and that labor costs in Japan were much higher. That was an eye-opener! With Chinese wages rapidly accelerating and given our present political trajectory of starving labor here, one can see the day when we will serve as the new China, supplier of wage slaves to build for the world – a disgusting thought!

What corporate America and our bankers in their rabid pursuit of short-term profit don’t seem to understand is that policies of short-changing labor through suppressive legislation (which they support) result in weakened aggregate demand for the goods and services they want to sell. Perhaps after they have exhausted the margins they are currently enjoying with globalization and have to turn to the domestic economy for survival, they may instead find themselves in bankruptcy court because they have destroyed the economic base of demand in this country in their greed to enhance their bottom lines via suppression of labor, and thus everyone suffers chronic recession with no end in sight. Not smart.

So the big Dow means a prosperous America? Hardly. It may mirror profits made elsewhere. GERALD  E


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