Editore"s Note
Tilting at Windmills

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March 16, 2009

THERE ARE FAR MORE IMPORTANT MEASUREMENTS.... The day after President Obama addressed a joint session of Congress in February, the Dow Jones was down about 2% by mid-day. Drudge, hoping to assign blame to the president, ran a headline: "Was it something he said?" A couple of hours later, the Dow had rallied, so Drudge changed the headline: "Stocks rebound." And an hour later, the Dow had gone back down again, causing Drudge to change the headline back to the original Obama-blaming message.

Putting aside what this tells us about Drudge's "standards," this was another reminder of the over-emphasis on Wall Street watching in the political world.

There's a perception that the markets are akin to focus-group dials. If the White House's economic agenda is sound and effective, investors will feel confident and the indexes will rise. If Obama is headed in the wrong direction, the markets will drop. This is especially true of the Dow Jones because, well, news outlets say so.

Jon Stewart said last week that some of us may be tempted to ask, "Isn't the Dow Jones Industrial Average just a short twitch numerical representation of a bunch of guesses about other people's assumptions about the financial well-being of an arbitrarily chosen group of 30 out of tens of thousands of possible companies?" He explained that we'd be wrong to ask, though, because the Dow is actually "a real time, cause and effect precision barometer of how the president is doing."

He was kidding, of course, but his joke accurately reflects a little too much of recent political reporting.

With this in mind, Jonathan Chait had a very good piece last week on conservative pundits and mainstream outlets blaming the bear market on the administration. The entire argument, Chait explained, is "unbelievably fatuous."

The larger fallacy here is to assume that the stock market is a proxy for the entire economy. Many people realize that the stock market is an imperfect gauge. But it's not just an imperfect gauge of the economy-it doesn't even attempt to measure the economy. Stock prices represent the market's guess at the profitability of corporations. While that's related to the health of the overall economy, it's not the same thing, and sometimes the two diverge sharply. During the Bush administration, for instance, corporate profits soared while wages for most families flatlined. [...]

The stock market has become the media's real-time economic report card. Economic statistics that actually measure broader material well-being come out once a month, some once a year, others once a decade. The stock market updates instantly, making it irresistible.

But resist we must. Stock prices go up and down for all kinds of reasons, but Wall Street is the wrong metric anyway. Obama is focused on job creation and economic growth, not the unpredictable fluctuations of 30 individual companies.

When the economy is in bad shape, the markets tend to go down. But the indexes are not the economy, and looking at the markets as some kind of financial approval rating for the president is foolish.

Steve Benen 11:10 AM Permalink | Trackbacks | Comments (28)

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Comments

Markets have more to do with unemployment, job insecurity, median wages declining, pensions declining, health care costs rising and hence consumer spending. You can't build an economy on declining wages and insecurity. Of course labor and wage news is almost nonexistant, and never figures into conventional wisdom, so maybe that's why commentators can get away with blatant lies.

Posted by: Jan in Stone Mtn on March 16, 2009 at 11:16 AM | PERMALINK

To put the stock market into perspective I realize, WALL STREET IS THE EPICENTER OF GREED. From this foundation the Wall Street index' can be better understood.

Posted by: ml johnston on March 16, 2009 at 11:20 AM | PERMALINK

let's clarify a point chait makes: stock markets reflects the market's guess as to the "future" profitability of corporate enterprises.

and, of course, the best way to make stock prices go up is to concentrate on the real economy, just as obama and team are doing.

Posted by: howard on March 16, 2009 at 11:29 AM | PERMALINK

I admit I am a stock market junkie. Because I have no money in stocks, I want to see them go down, down, down, to numbers that reflect the real economy instead if the econo-tainment we've had since Reagan.

However, if I want to get an idea about the economy, I go to http://www.economicindicators.gov/. It a'int pretty.

Posted by: Eric on March 16, 2009 at 11:29 AM | PERMALINK

There is a very important difference between Stewart's and Chait's descriptions.

Stewart: ... a short twitch numerical representation of a bunch of guesses about other people's assumptions about the financial well-being of an arbitrarily chosen group ...

Chait: the market's guess at the profitability of corporations.

Stewart is right, and Chait incomplete, and that's why indices like the DJI are even more unreliable: they respond as much or more to internal events as to external ones.

Posted by: bleh on March 16, 2009 at 11:32 AM | PERMALINK

It is also a somewhat optimistic measure of whatever it measures. Occasionally a hot company is added to the Dow and a loser is dropped.

Posted by: tomj on March 16, 2009 at 11:34 AM | PERMALINK

What a shame that the Republican Party has pretty much dropped out of policy discussion.

Posted by: anandine on March 16, 2009 at 11:38 AM | PERMALINK

"However, if I want to get an idea about the economy, I go to..."

I go here. If Steve says it's bad, it's bad.

Posted by: MissMudd on March 16, 2009 at 11:40 AM | PERMALINK

Well, the markets are up again today, so you don't have to worry about hearing any more from wingers for a while about how they're a referendum on Obama. ;)

Posted by: Steve LaBonne on March 16, 2009 at 11:40 AM | PERMALINK

The fact that the DOW can go up by over 300 points because 1 company (Citigroup I believe) projected profits for 1 quarter should tell you all you need to know about the current state of Wall Street. Shysters, all of them.

On a related note, I've been posting about the 'cold class war' that has been fought in America since our inception.

Let's not pull any punches here, we are in a class war against the powerful, ultra wealthy plutocrats that think it's their manifest destiny to rule and the rest of us are simply serfs, laborers who break are backs to keep the elite in power.

Here is a great article that really gives a great counter-argument to the right's mantra of wealth re-distribution, and what they openly say is class warfare:

http://www.alternet.org/columnists/story/131083/hightower%3A_conservatives_are_blind%2C_deaf_and_dumb_to_class_warfare/

Posted by: citizen_pain on March 16, 2009 at 11:41 AM | PERMALINK
He was kidding, of course, but his joke accurately reflects a little too much of recent political reporting.

"Recently" only insofar as recently media coverage of Presidential performance has, due to the economic crisis, focussed on the economy. The real underlying problem with the Dow focus, and not just recently, is that the Dow has become the media's prime barometer of economic well-being, even though it is an extremely poor measure of that.

Posted by: cmdicely on March 16, 2009 at 11:46 AM | PERMALINK

Steve: There's a perception that the markets are akin to focus-group dials. If the White House's economic agenda is sound and effective, investors will feel confident and the indexes will rise.

Funny how the wingers never raised this argument when the market lost thousands of points under Bush.

That shows that this isn't true criticism, but merely snarls from the peanut gallery in a desperate attempt to ignite the crowd and distract from their own shame and inadequacies.

Posted by: trex on March 16, 2009 at 11:46 AM | PERMALINK

The Pundits do not understand economics so their Wall Street coverage must of necessity be about something they do think they understand: politics.

Posted by: jen f on March 16, 2009 at 11:57 AM | PERMALINK

But when you are a money-grubbing corporate fascist, it's the ONLY measure!!

C'mon, any Harvard MBA will tell you, money is the only true measure of anything worthwhile. Who cares about democracy, or humanity.

According to Wall St., mere possession of money/capital is hard work, worthy of great reward. Doing physical work is not, actually performing the services, or labor needed to manufacture, is not work, and is not worthy of reward.
These Authoritarians also think that paying someone else to be creative, is creativity.
That owning the slave that farms your field, is being a farmer.

Let Atlas shrug, and let him suffer the wrath of the masses.

Posted by: Al B Tross on March 16, 2009 at 12:10 PM | PERMALINK

Never mind the fact that all of these commentators know perfectly well that the Dow is in no way representative of the market as a whole.

Try the Wilshire 5000, and then maybe people might take you seriously....

Posted by: mfw13 on March 16, 2009 at 12:23 PM | PERMALINK

"He was kidding, of course, but his joke accurately reflects a little too much of recent political reporting." -Steve Benen

There's nothing 'recent' about trying to tie the stock market to political events. It has ALWAYS been BS and ALWAYS will be, as Jon Stewart seems to be saying.

Posted by: slanted tom on March 16, 2009 at 12:26 PM | PERMALINK

Al B Tross (great name, BTW) makes an interesting reference to "Atlas Shrugged." There seems to be a lot of discussion about this book lately, especially among conservatives looking for something to inspire them.

The main idea of the book, that if the wealthy and powerful plutocrats decided to walk away to show the masses how bad things would be without their "enlightened" leadership, is--how shall I put this? STOOPID!

Let's assume for a moment that this scenario actually happened. Sure there would be a moment of chaos. That's to be expected. But every vaccuum gets filled. New leaders would rise up to claim the opportunity. But let's set that aside for a moment and look at the bigger arguement made in this story. It is the idea that the mass of workers are too weak, too stupid, too timid to ever challenge the mighty captains of industry.

The problem is, this just isn't true. History is filled with riots, revolts and outright revolutions where the leaders were overthrown. And who did this? What mighty force accomplished this impossible feat? Yep...the humble, stupid, timid masses. Only, they aren't so stupid or timid as some want to believe.

Posted by: independent thinker on March 16, 2009 at 12:36 PM | PERMALINK

The Dow is actually a pretty good proxy for the stock market as a whole.

Of course, no one is in agreement to what 'the stock market as a whole' means.

Should you weight each stock my market value? Kind of like the S&P? Should you weigh each one the same? Kind of like Value Line? Should you weigh each one by price? Exactly like the Dow?

Price weighted seems the worngest to me but the Dow started that way because it was far easier to do back when we had ticker tapes and people added and divided using paper and pencil.

But even with all its flaws, the Dow doesn't do too bad a job.

Posted by: neil wilson on March 16, 2009 at 12:46 PM | PERMALINK
The problem is, this just isn't true. History is filled with riots, revolts and outright revolutions where the leaders were overthrown. And who did this? What mighty force accomplished this impossible feat? Yep...the humble, stupid, timid masses.

Or, at least, that's what the post-revolutionary propaganda says. In reality, most successful revolutions had substantial support from some portion of the pre-existing elite, either military, political, or industrial, which joined the masses against the rest of the established elites. But the winners write their own history, and "the little guy" against "the elites" is always a better story.


Posted by: cmdicely on March 16, 2009 at 1:02 PM | PERMALINK

The DOW has a lot of "bailout" recipients.

Remember, we are to reward incompetence!

The DOW is an average, of but a few stocks.

Posted by: Tom Nicholson on March 16, 2009 at 1:07 PM | PERMALINK

Good point, cmdicely. I was wondering if anyone would point that out. Our nation's own revolution illustrates your point nicely. It never would have happened without the support of influential people willing to try. And yes, many of them went kicking and screaming into the revolution. Still, when popular support for the monarchy slipped to around 50/50, that is when the revolution became a possibility.

Posted by: independent thinker on March 16, 2009 at 1:27 PM | PERMALINK

It's worth noting that the Mini-Report almost always includes a link about "how the markets are doing" near the top of the report. If they aren't so important, why not do away with that link altogether, or put it near the bottom?

Posted by: meander on March 16, 2009 at 1:28 PM | PERMALINK

let's clarify a point chait makes: stock markets reflects the market's guess as to the "future" profitability of corporate enterprises.

If that were true, we would be in a lot less trouble.

It does not represent this at all.

What it represents is the best guess as to the future price of stock, which may have very little to do with actual operational performance. With all of the derivatives, takeovers, mergers and Jim Crameresque rumor mongering, the whole thing might as well be Intrade.

People don't invest in companies anymore.

They bet on short term price fluctuation. Price is related to profitability, but there are many other variables, especially in the short term.

Given that so many boomers are invested as a substantial part of their retirement planning, the focus on short term returns will increase even more.

Going public is the worse thing that can happen to a company IMNSHO. It only benefits a select few. Customers, employees and the majority of investors get screwed.


Posted by: lobbygow on March 16, 2009 at 1:31 PM | PERMALINK

the real atlases of the world (the money classes) actually should be rooting for obama's policies to work. why? so much of their wealth and income derive from the market.

the market(we're really talking about a relative handful of fund managers who control institutional portfolios) does react to the political world, just like it does to a thousand other things. it's especially true in these times when the economy is the overwhelming political issue. its daily judgments are not always rational to say the least. to rely on it as some sort of daily barometer of the economy or a approval/disapproval reading of the president is silly to say the least.

on the other hand, if the dow, nasdaq composite and the s&p are still in the toilet a year or two from now, (or conversely up say 20 or 30 percent or better) that will tell you something about the state of the economy.

Posted by: mudwall jackson on March 16, 2009 at 1:40 PM | PERMALINK

How can the system account for insider trading and ponzi , errr... Madoff, schemes? The fact is the rich coerce the powers that be to protect themselves from causing too much harm to themselves. Let's face it, big business is reactionary and it always comes when the commoners have been bent over and lost everything. The only time they have been proactive is when they deregulated the system and caused great harm to the wealth or pursuit of happiness of "We the people". I hope that Obama succeeds in bringing real change to Washington. Lord knows we need it now more than ever as we are the worlds economy.

Posted by: Chris on March 16, 2009 at 2:25 PM | PERMALINK

In other words, while the Democrats are in charge we should ignore bad news because it couldn't possible be due to Dem policies. If Jim Cramer cheerleads for investments, he's a charlatan. If Obama is the cheerleader, then he is the second coming of FDR giving the people hope.

Posted by: Luther on March 16, 2009 at 3:31 PM | PERMALINK

If Jim Cramer cheerleads for investments, he's a charlatan. If Obama is the cheerleader, then he is the second coming of FDR giving the people hope.

No, not at all. If you fucking bothered to pay any attention at all to the continuing and thoughtful criticisms of Obama's policies by people on this board rather than using it as a forum for your own particular brand of utterly off-the-wall political Tourettes, you'd know that isn't true.

But more to the point, there is nothing you wrote in your little blurb that isn't a strawman or a red herring, or a false equivalency, or off the point. Well done!

Not that it matters, you're not interested in the truth or real debate, just jerking off off in front of a crowd for your own enjoyment and calling it art.

Posted by: trex on March 16, 2009 at 4:51 PM | PERMALINK

Jonathon Chait is a worthless tool. It's pretty late in the game to be trying to score points after being such a suckup for Bushco for so many years. As far as I'm concerned he can shove his late-to-the-party me-too-guys stuff up his toadying butt.

Posted by: melior on March 16, 2009 at 6:01 PM | PERMALINK




 

 

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