Joe Doakes from Como Park emails:
A buddy wonders why, if the economy is as bad as Republicans claim, the stock market is roaring? Doesn’t that prove Republicans are lying?
I’m no expert but even I have noticed the S&P 500 and NASDAQ have hit highs while the Dow Industrials and Dow Transport have not. What’s the difference? The high-flying stock exchanges buy and sell stocks in companies that are NOT industrial or transport. So what are they? The NASDAQ-100, the top performing companies, is composed of banking, insurance, mortgage and brokerage companies . . . in other words, companies that own a lot of paper but nothing else. They are dependent on the federal government continuing to dump $60 Billion per Month into the economy to prop up lending and housing. When that gravy train stops, those companies will collapse.
Industrial and transport – companies that own a lot of heavy iron – have been wrung dry for a decade and thus are far less dependent on stimulus but also far less profitable right now. Major contractors don’t order billions of heavy machinery for a short term burst of government work; instead, they do the jobs with what they have, defer maintenance, scrape by. The real orders for machinery, jumbo jets, etc. go to companies that are seeing real growth.
The true measure of the economy is not reflected in paper companies that shuffle stimulus money back and forth, skimming a percentage off the top each time. The true measure of the economy is iron companies that make things that do stuff. And that economy is not robust at all.
Joe Doakes
To take the absurd extreme, if I had a Dow Jones company, and I laid off all the employees and sold all the inventory and buildings and land, and took all that cash and the bailout payment besides and stuck it in a Swiss bank account, my stock value would be…
…well, probably 0, and I’d probably be in jail for something or another.
But leave out the “selling the plants and land” bit, and don’t lay off quite as many people, and my stock value would soar, because I’d be in a freaking awesome cash position. No matter that I’m producing less, employing fewer, shedding payroll, and just waiting for things to get better. My shareholders are happy.
Isn’t that the sort of thinking – thinking for profits? – that liberals claim to criticize in business?
I’m a good rightwing capitalist, but there is one big flaw in the system. It rewards short term gains and status. That is why the stock market goes up when interest rates go to crazy low level. It means more debt will be taken on, less savings, so people will spend money that quarter. But in the long run, that is bad (huge debt, no savings).
The market doesn’t reflect a weak foreign policy until something bad actually happens. See good market in the 90s, bad market on 9/12/01.
The market doesn’t reflect a strangling business regulation until the results actually appear, which can be years down the road. The war on coal started 40 years ago. And we still haven’t seen a spike in electic rates due to no new power plants being built (coal or nuclear). But that will be coming.
The market doesn’t reflect borrowing trillions of dollars from the Chinese to pay entitlement programs that have huge amounts of fraud, and in the long run destroy the work ethic that made the US an ecomonic powerhouse in the past.
Lessee……why are companies running things for short term gain these days? It wouldn’t have anything to do with government regulations, and the fact that a metastatic regulatory state makes long term planning difficult to impossible, would it?
Chuck, I have already noticed that my electric rates have gone up about 4% in 2013. Funny, because I used less than in 2012.
A close friend’s wife found that having a garage sale got her some rather quick cash. So she had another. It didn’t take long (but longer than it should have) to realize that this quick cash infusion had a downside.
Data is going to be a problem. You can’t do controlled experiments in economics. There isn’t another USA that tried things differently that you can compare to. My point was that even when you think you have data, it doesn’t really answer your question, because all of the other variables weren’t controlled. You can never truly back out the contribution of a single variable. So yes, we resort to anecdotes and philosophy, correlations and cost/benefit analysis. Economics will never be a hard science.
I agree, Emery. But there’s a difference between basing public policy on the best available data versus skewing the data to fit the desired public policy. I suspect the present administration is enamored of the latter and fear the consequences when reality catches up with us.
Economists write papers with data and then some opinions and recommendations for public policy. If somebody else comes along and cites their numbers but ignores their opinions, that’s fair game. Academics do the same to each other all the time. You’re complaining that a politician would use data for political purposes? I’m happy when politicians use actual data; it’s a step forward.