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April 18, 2017


There was a point in time when the Dow reflected what was going on in the economy. It actually was a measure of economic activity. Shareholders held their stock for years. Short-term trading was relatively rare. Buybacks designed to increase dividends and enhance potential for capital gains to restive shareholders were relatively unusual. No more.

The Dow these days doesn’t have a lot to do with economic activity; it is rather a measure of financial crap shooting for “investors” in the 30 publicly held corporations in the index. The old idea that the shareholders “owned” the corporation is still technically true but immaterial to the investment purpose. Stocks bought today may be traded tomorrow for short term capital gain or held until dividends (if any) are declared and paid. It’s not an investment as Wall Street moneychangers would have you believe but rather a casino world – and stocks are the chips.

There is no loyalty to the corporation by the shareholders involved; the “company” is mere cover for the crapshoot. No new value accrues to the “company” and no new markets are opened to the “company” by mere trade and exchange of its stock. The so-called “market value” of the company and other such measures thus have little to nothing to do with the company’s base economic activities, though increased but unshared worker productivity stolen by management may marginally increase the value of the company’s stock, an increase not because of better management or innovation by management but by the harder work and more efficient utilization of time, space and materials by corporate workers.

The foregoing is prologue. What I want to discuss in this piece is what distinguished economists like Stiglitz and Piketty have discussed at length in their books and papers: wage inequality and economic growth. There has been no wage growth for the last forty years in median wages as adjusted for inflation, thus real compensation for corporate workers is the same as it was forty years ago. That is not a recipe for economic growth since such workers as consumers are in charge of 70% of demand in the economy and the economy cannot grow as it should due to lack of growth in demand which is in turn the direct result of wage inequality where the labor sector is underpaid and the financial sector is overpaid. This may be good for Swiss bank accounts but it is a drag on our economy.

Stiglitz calls it an underperforming economy and correctly likens our economy to a pie in which too big a piece is given to Wall Street and not enough to corporate workers who work with their hands and minds. The solution is, of course, to make the pie bigger so that more is available to both finance and labor sectors for fair distribution like it was after WW II when the economy was booming and finance and labor shares of the economy’s income and wealth grew in tandem.  Making the pie bigger is synonymous with economic growth, which won’t happen in an underperforming economy.

So what are some of the further macro results of tepid demand in our underperforming economy and why doesn’t Wall Street (via their political captives in Congress) and enlightened politicians do something about our lagging growth by making the pie much bigger by putting more people to work at higher wages fixing our infrastructure, building bullet train railroads to relieve urban congestion and making serious investments in education in the hope of maintaining our innovative edge (assuming we haven’t lost it already with our status quo policies)? Imagine what such a Keynesian stimulation of our economy would do to aggregate demand and ancillary industries in our economy, not to mention great increases in revenues to government which could be in turn utilized in paying for such and other efforts.

Why shouldn’t Wall Street be for economic growth? Well, why should they? From a profit point of view, there is no point in making the pie bigger when you are doing just fine with the present system of wage inequality and a captive president and Congress who promise to reduce your taxes and regulations on your businesses (which means that you can make more profit without economic growth and the risks of further investment). You just take more of the inelastic pie. The problem, among others, is that when you take a bigger slice out of the pie that is not growing, other sectors, including labor, the unemployed and retirees have less of the pie to share among themselves, and though the Dow may be soaring, the economy goes even further south for lack of demand in the market. Thus the Dow tells us nothing other than how government is giving away our money to the superrich because we either have to make up for the taxes the superrich do not pay or become liable for an increase in the debt (which the rich, inexplicably, complain about).

Right wingers are doing well with our present embrace of austerity economics; their Wall Street campaign contributors don’t need to see the economy prosper; they instead run to government in search of tax cuts and less regulations which in turn make for ever higher profits even while aggregate demand withers, the economy languishes and the rest of us are trapped in a 40-year old system of wage inequality.

How to change this long-standing and unfair system before the pie itself evaporates into recession or worse? Elect Keynesian candidates to the state and federal legislatures who know the difference between spending and investment and who will invest in America and its people rather than add to the troves of the superrich. Results, among others? Economic growth takes off as those who work in the real economy have the wherewithal to buy goods and services and as revenue growth allows government to fund education, infrastructure repair and renewal etc., all of which we have neglected in order to have more government funds to pay off the superrich while impoverishing the rest of us, and finally, the Dow may once again be a barometer as before of what is really happening in the economy free of business page propaganda.

Can’t happen because of globalization? Baloney! Germany and Sweden, for instance, have economies that have been and are doing well, and they are faced with the same problems with globalization that we are facing. That is an excuse used by status quo exponents who like the current favoritism and political power structure we have where they can prosper without risk. That structure can and should be changed, so let’s do it.       GERALD        E




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