The Stock Market ‘R US

Many politicians, mostly Republicans of course, would like us to believe that what's good for the stock market is automatically good for the United States. In fact, they would like us to believe that the two are virtually synonymous as Thomas Frank points out in a chapter entitled "The Democracy Bubble." In fact, even the so-called liberal media, which should know better, has gone out of their way in recent years to bolster this idea by focusing on "common men" who have been successful in the market and on rich investors who are really just like your next door neighbor.

Unfortunately, the facts do not readily lead to the same conclusion:

Before we proceed, however, let us be clear about the stock market's actual contributions to economic democracy in the United States. However widely dispersed stock ownership may have become in recent years, the vast majority of shares are still held by the wealthy. It is this simple, incontestable fact of American life that, more than almost anything else, has permitted the massive skewing of wealth distribution in the last two decades. Stocks are the economic engine that has generally made the rich so very much richer than the rest of us, first through the bull market of the eighties and then through the bull market of the nineties. There is no controversy or secrecy about these facts: Even an economist as partial to the New Economy as Lester Thurow acknowledges that America's widening inequality can be attributed directly to the rising stock market. A full 86 percent of the market's advances in the last four years of the bull market, he points out, went to the wealthiest 10 percent of the population. The majority of the population, not owning any stock, shared in the great money handout not at all." The booming stock market of the nineties did not democratize wealth; it concentrated wealth.

When politicians talk about giving tax breaks to investors, they are inevitably talking about giving tax breaks to the wealthiest Americans, not to middle-class Americans and, certainly, not to poor Americans. While politicians could perhaps make the argument that we need increased tax breaks to ensure that more people invest their money rather than consuming more and more, they cannot make a convincing argument that such tax breaks will benefit the average voter, despite their attempts to do so.

Nor can they make a successful argument that "owning a piece of America" somehow makes you equal to wealthy stockholders:

As for the notion of representation through stockholding, it is important to remember that "one dollar, one vote" is the definition of plutocracy, not democracy. While it is true that even the smallest of shareholders is entitled to attend companies' annual meetings and help themselves to the free radishes and nonalcoholic beer dispensed there, their votes are, in almost all cases, woefully insignificant in comparison to the massive clout wielded by institutional investors. In the case of mutual funds and pension plans, the instruments most frequently cited for their democratizing effects, individuals have even less of a voice. The voting is done for them-and by law, in the case of certain union pensions-by the manager of their plan or mutual fund.

I don't know about you, but the $20, 000 I have invested in mutual funds for retirement has not allowed me to have much input into how the companies I "own" conduct their business. If I thought it did give me more say, I might actually buy stock in some companies that are polluting the environment so I could have some say. Of course, I'm not really foolish enough to believe that the votes I would get for $20, 000 would have any effect on the way such businesses behaved.

Equally absurd is the notion that because of increased investment in the stock market that the middle class is now in control of the market:

The notion of the "middle class' somehow "taking control" of Wall Street may be a little dotty, but it's hard to disagree with the underlying aspiration for a democratic economy, a financial system that respends to the needs of the people. Traditionally, of course, the institution by which the middle class has "taken control" has not been the mutual fund or the discount brokerage, but the labor union, which has a proven historical track record for democratizing the distribution of wealth. Unfortunately, Nocera had no interest in seeing the working class join the "money class"; in fact, when it came to unions, he has nothing but scorn. What unions brought was not economic democracy but inflation, the great bogeyman of his beloved "middle class." In establishing this point Nocera made it clear that unions, as representatives of "the lucky few," were fundamentally not "us"; in fact, they were basically indistinguishable from all the arrogant bankers and other who denied "us" our rightful percentage in the first place. "Whenever a union chief won a demand that his members receive wage increase exceeding the cost of living," he wrote in a chapter on the economic climate of the 1970s, "his action made inflation worse for all of us, which had to bear the cost of those higher wages for the lucky few."

As I mentioned in an earlier entry, my wife and my joint earnings qualify us as "upper income," or in the top 20% of wage earners in America. Still, it took me most of a lifetime to find $20,000 to invest in stock after I paid for 1 1/2 homes and helped two kids through college. If it took me that long to save up money to invest, I imagine those who made less than us, supposedly 80% of the population, would find it even more difficult to do so. Personally, I have no delusions that I am talking control of Wall Street, and, judging from recent scandals, it's questionable if anyone has any real control over Wall Street except Wall Street insiders.

In the 10 plus years that I've had the money invested, I've made just $5,000 in profits, which breaks down to about $500 a year profit. It's obvious that those earnings would have done very little to support me. Like most Americans, it was the wages from my job that supported me, not investment earnings. It is the hourly and monthly wages that will continue to support the majority of American families into the foreseeable future. If America's middle class is to continue to thrive as it has done in recent history it will be because wages will keep up with inflation, not because stock market values continue to rise. For most American families, it would make little difference if the DOW hit the 20, 000 mark, much less maintained the 10, 000 mark.

If the Democrats are going to regain political strength, they are going to have to realize that it is jobs and wages that are vital to American workers and once again convince voters that the Democratic Party can do the best job of protecting and promoting those jobs. While the well being of the stock market is obviously an important part of providing for the needs of all Americans, it is not the sole area of concern and to imply so is to continue to play a shill game on voters.

There are more important measures of the well-being of our nation than whether or not the Dow climbs steadily, and the Democratic Party needs to regain the high ground on issues like day care, education, health-care, minimum wages, labor laws and environmental protection that effect the well being of all of us

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6 thoughts on “The Stock Market ‘R US

  1. “If America’s middle class is to continue to thrive as it has done in recent history it will be because wages will keep up with inflation, not because stock market values continue to rise.”

    Indeed Loren. It’s to be noted that big institutional investors do not hold on to stock for long. They turn over a large percentage of their portfolios every 6 months. This puts enormous pressure on companies to make their bottom line perform to wall street’s expectations so that their stock price will perform well and that in turn leads to outsourcing, downsizing and all those bad things that keep tearing at the middle class’ ability to survive. This does not allow companies to do serious long term planning, everything is focussed on the next quarter. Wall street is one of the worst things that ever happened to American business and certainly the American economy.

  2. “While politicians could perhaps make the argument that we need increased tax breaks to ensure that more people invest their money rather than consuming more and more, they cannot make a convincing argument that such tax breaks will benefit the average voter, despite their attempts to do so.”

    Not to pick nits, Loren, but politicians seldom make an argument for such tax breaks or the centrality of the stock market. They simply say it will benefit the average voter, assuming no one knows any better or that simple repetition can make something true.

    I agree with Doug’s assessment about the negative consequences of the stock market and it’s growing centrality to our economy. What other choices do people have when planning for retirement, though? That’s something the Democrats should make central to their economic agenda.

    You’ve hit the other things they need to do squarely on the head, but one thing missing is the need to frame their debates in such a way that liberal, democratic and progessive ideas are not inherently out of bounds a priori. I’m thinking of the work of George Lakoff (http://www.berkeley.edu/news/media/releases/2003/10/27_lakoff.shtml) who’s studied how the conservatives have undermined the debate in this country by controlling the language we use to discuss politics in the past two decades (tax relief necessarily means taxes are a burden rather than a responsibility, etc). Until the Democrats can build up their own progressive frames, they’re at an almost insurmountable disadvantage.

  3. Nit-picking is good, Andru, particularly because I certainly don’t consider myself an expert on this.

    I agree that politicians seldom make arguments like this to the public but they certainly know who they’re benefiting when they cut taxes on capital gains and when those who inherit stock don’t pay taxes on the capital gains at all.

    I have Lakoff on my “to read list” but from what I’ve read I certainly agree with you. In fact, part of what I’m saying here is that the Democrats need to start now re-defining the argument.

  4. Do you know that you need to get permission from publishing houses, etc. to put whole poems and long prose excerpts on your website? What you have done is illegal.

  5. I don’t know why I didn’t think of it before, but you, and Frank, *are* talking about framing the debate. The idea that markets, in general and not just the stock market, what Suroweicki calls the “Wisdom of Crowds,” are the best way to make decisions and allocate resources is a frame in itself that must be challenged. Even Adam Smith thought markets must exist within a moral framework in order to create a just, and successful, society.

    It’s true the Democrats must begin that process as soon as possible, largely because changing a frame takes a long time.

  6. I agree with what you’ve said here, Andru.

    Unfortunately, I think one of the downsides of Clinton’s presidency that he, too, used the stock market to validate his own administration.

    I think many workers feel that both parties have abandoned them for the market, and it’s going to be difficult to reestablish that bond particularly when unions have unfortunately lost both their power and their appeal to most people,

What do you think?