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 . . . ?
Great idea. For a chemist you’d sure make a great social-economist, Steve.
Comment by john zande — March 1, 2013 @ 8:44 am |
There you go again, turning my head! So many aspects of our social norms have been determined almost randomly. Somewhen somebody was asked what to include as “business news” on a 15-minute or half-hour TV news program and the suggestion was “something” about the stock market. What does the DJIA really tell anyone, even an investor? Not much. But TV commentators, largely uneducated in economics, think it must be important as we have been telling people about its ups and downs for fifty years. The flash crash of a few years ago is telling: nobody today knows why the stock market crashed one day and rebounded the next. It had something to do with computerized trading, they think. A Hollywood insider once said (of Hollywood) “Nobody knows shit.” I think it applies to “high finance” as well. Oh, did you see that a major study showed that the more informed you are about stocks and the market, the less well you do as an investor. That’s telling too! Move along nothing to see here. Ignore the man behind the curtain.
Comment by stephenpruis — March 1, 2013 @ 8:55 am |