Home > Uncategorized > Good news, the stock market is plunging: thoughts on wealth

Good news, the stock market is plunging: thoughts on wealth

from Dean Baker

Several people on my Twitter feed touted the drop in the stock market last month as evidence of the failure of Donald Trump’s economic policy. I responded by pointing out that he was reducing wealth inequality. I was being only half facetious.

I have always been less concerned about wealth than income both because I think wealth is less well-defined and because income is the more important determinant of living standards. In the case of the stock market plunge, the vast majority of the losses go to the richest 10 percent of the population and close to half go to the richest 1 percent, for the simple reason that this is distribution of stock ownership.

When people decry the rise in inequality in wealth over the last decade, they are basically complaining about the run-up in the stock market. The real value of the stock market has roughly tripled from its recession lows. With the richest one percent holding close to 40 percent of stock wealth and the richest 10 percent holding more than 80 percent, a tripling in the value of the stock market pretty much guarantees a big increase in wealth inequality. If we think this increase is bad, then why would we not think a drop in the stock market is good?

There is a correlation between the stock market and economic growth. The market generally rises when the economy is strong and falls in recessions, but this link is weak. Remember the recession of 1988?

I hope not, because the economy continued to grow at a healthy pace until the summer of 1990. This is in spite of stock market’s largest one-day drop ever in October of 1987. (It did recovery half of its value by the end of the year.)

In short, the recent plunge in the market tells us little about the future direction of the economy. If we are troubled by wealth inequality then we should be happy, rich people now have substantially less wealth.

  1. James Beckman
    November 9, 2018 at 5:37 pm

    As always, sound observations, Dean. My father played the stock-market and early on I noticed it was like a recreation which he & his buddies played at Beltramo’s in Menlo Park. In other words, there is play money & then some portion which is considered “real” money allowing one to buy a second home, expensive vacation, etc. Many of the endless toys of the super rich are indeed play monies in use, it seems to me.

  2. Helen Sakho
    November 10, 2018 at 2:29 am

    Good news? Paradise Lost or Lost Paradise? Which do we prefer?
    The only bad news is that the damage has been exported.

    • November 21, 2018 at 1:50 am

      Helen, if I understand your intent, I agree. Yet, all may not be lost, if and only if we upgrade the paradigm and the definitions of wealth & success based viable bio-ethics, supporting truly beneficial outcomes.

  3. November 21, 2018 at 1:42 am

    Brilliant! Very useful. Thanks.

  4. November 21, 2018 at 2:14 am

    Dean, if the plutonomy is the “real” economy, then yes, what you said about “wealth” changing hands seems correct. Yet, as the Wikipedia article on the 1792 Coinage Act points out (at the end of the last paragraph), the deceptive manipulations & unConstitutional changes of US monetary policy since then rendered the term “dollar” meaningless. If that is so, then it the Fed dollar’s monetary value is unreal. We cannot have real value without a unit of measure having a meaning. If the value of various currencies or assets and physical objects are relative to a monetary standard, then the benchmark standard must have a relative value, per the terms of the standard. Again though, without a defined basis of valuation, we have no real knowable value at the foundation of the system. If we say that fluctuating relative values of various currencies are valid measures of momentary value of any one of them, regardless of a baseless, meaningless, unreal standard, then nobody can know what anything is worth at a precise moment. That makes fair, equitable exchange impossible. What it does enable is a phantasmagoria of deceptive illusion, manipulable by clever exploiters and their expert plutonomists & parasitic apologists. Thomas Jefferson, among many other founding fathers and careful observers, understood the nature of the national debt-for-profit game. They failed to prevent it, but we can establish an alternative, a global community development alliance and a global community credit system that enable stable commonwealth for 99.9% of us. Otherwise, the winning-class will continue its inevitably ecocidal Winners Take All class war against the losing-class (us).

  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.