Yesterday the Dow Jones Industrial Average, a measure of the temperature of the Stock Market, came within a hair’s breadth of hitting an all-time high (yes, all-time). At the same time personal income tumbled 3.6 percent in January, the largest drop since January 1993. The income at the disposal of households after inflation and taxes plunged a 4.0 percent in January after advancing 2.7 percent in December.
So, why do we use the DJ as an indicator of the overall health of the economy? Why do we not use an index of middle class wages, something that would reflect the ability of Americans to purchase goods and services? The stock market tells us very little; we think it does but it does not. If it were a measure of the economy’s health, should not the economy be booming?
Ask yourself: if middle class wages were growing at a very fast clip, would you think the economy were stagnant? or weak? or . . . ?