01 June 2012


Change, unless it is revolutionary and often entailing violence, happens incrementally.

Today the stock market dropped 274 points on bad employment news. The unemployment rate ticked up a tenth and new hires were down.

Believe it or not, that could actually be a piece of good news. Why, you might well ask? Good question. You, my readers, are very bright people (and not corporations).

The answer requires you to think back to the early go-go G.W. Bush years—and even before. During that time, when unemployment rose, the stock market rose. When hiring went up, it fell. Month after month there was this disconnect.

When Bush took over after Clinton, there was, essentially, full employment. The stock market bubble of the Bush years was built on the back of the employment market. Unemployment rose, and the market skyrocketed. However, this bubble was, as we saw, unsustainable.

It represented a schism between productivity and profit-making, on the one hand, and employment, on the other: productivity and profits rose while employment foundered. Higher unemployment meant, in that bubblicious economic moment, greater profitability for the corporate owners and, Bush's ultimate constituency, the management class.

Workers' higher productivity was not being rewarded; wages fell and unemployment rose. Instead, profits went to corporations—which to this day still have remarkable stores of cash sitting on the sidelines and are still refusing to hire. Rising stock prices resulted. It was the mechanism of the great redistribution of wealth from the working and middle and lower upper classes to the rentiers at the top of the economy.

Today's higher unemployment news created a bad moment for the economy—this drop wasn't about Europe or China. This is significant. It is different from the trend of the 'aughts.

The question now becomes: Is this a tipping point away from the 'supply-side' mythology of trickle down economics wrought by the laughable Laffer curve of Reagonomics? Does this represent a real, though probably politically imperceptible, change? Are we moving to a more Keynesian, demand-driven, egalitarian economy where increases in productivity by workers are rewarded by higher wages and not siphoned off for executive pay and outsized profits? I don't know. I'm no economist. But it does look definitely different.

This sort of trend—if it is one—is worth paying attention to going forward. Guys like this and this, who are economists, might be able to tell us.


Frances Madeson said...

You don't see this as the commencement of the post-Memorial Day political theatre you predicted?

As long as the markets go up and down, for any reason, at least it's not stagnation and therefore a sign that the system still works in some fashion. There's a game and it can be played, even if it's pointless. If the system works, or could work, and the 274 points could one day be restored, that's 274 reasons for the investor class not to rock the boat. Their hopes are up, they're down, most importantly they're in play--suckers.

We haven't yet seen the real trigger for the drop; but the response to whatever that turns out to be has probably been preemptively neutralized.

ifthethunderdontgetya™³²®© said...

If this wasn't enough to shock our plutocratic rulers to their senses, I doubt if 2.46% decline in a day will.

They'll just double down on their desire to cut Social Security. That's what all the smart people want to do.

Randal Graves said...

How do you know that I'm not a stupid corporation?

This topic makes me ill. I prefer the slimy tendrils infiltrating every slice of society to be Lovecraftian. Hmm, money, there's the *real* Old One.

Frances Madeson said...

I couldn't agree more with ifthethunderdon'tgetyou! That was the warning shot that signaled "if we ever did have a time when markets weren't tampered with, it is now absolutely over." If that 1,000 point drop (what was it? some technological glitch, so called?) could happen, they could and would and are and will do anything. There is no separate category of economics vs. politics; it's one and the same. BTW, the very next day I took every cent I possess out of the capital markets. It sits in an IRA in cash where one day I fully expect it to be significantly devalued, but that will be the last thing they devalue in my scenario so I'm trying to buy some time. When I'm 59, if the account is still intact, I'll start withdrawing the maximum cash every year and use it to make things, enliven it as a resource for life, lives, living, my own and others. But I don't and won't play the market --even targeted speculation as a friend advised me to do, last time the market went up a few weeks ago--and I don't play the electoral booth anymore. Both are a matter of dignity.