< Bull&%#@ Market


Friday, March 02, 2007


This is On the Media. I'm Brooke Gladstone.
And I'm Bob Garfield. On Tuesday a banking crisis spawned a freefall in the Chinese stock market, triggering investor fears that caromed around the world. In the U.S., combined with former Federal Reserve Chairman Alan Greenspan's public comments about a possibly looming recession, the news resulted in a loss of more than 400 points on the Dow Jones Industrial Average, the largest such decline since 9/11.

It was also the top story everywhere. But should it have been? Economist Dean Baker of the American Prospect believes that media preoccupation with the ups and downs of Wall Street not only distracts us from more significant economic issues, but mistakenly assumes a rising market is good for everybody.

There's a tendency to talk about the stock market like it's the home team, so that when the stock market's up we should all be out and celebrating; when it's down, this is bad news, we should all be dour and glum.

Well, actually, for many, perhaps most of us, the stock market isn't the home team. Most people own little or no stocks; 75 percent of the public has less than 25,000 dollars in the stock market. That includes the 401Ks that they may have, if they have them.

So for them, you know, if the stock market's down, it's not necessarily bad news; it could even be good news.
You're suggesting that when the stock market is up for somebody, that's bad news?
Well, it can be. I mean, the way to think about it is there's sort of three general ways in which you could see the stock rising. One, it could be rising because profits are projected to be higher, and they're projected to be higher because the economy is projected to grow more rapidly. In that case, we could say that is good.

But it may be rising because people anticipate higher profits because wages are going to be lower, or maybe corporate income taxes are going to be lower. That's, again, good if you own a lot of stock, but if you're the person picking up the tax tab 'cause the corporations aren't paying it, you may not be happy.

And, of course, if you're the person working for wages and profits are higher 'cause your wages are lower, you're not going to be happy.

And the third story is, you know, Alan Greenspan's irrational exuberant story of the late nineties where you had a stock bubble. You know, if you're there riding the bubble and you're a shrewd trader and you can get out on top, good for you. But most people aren't in that boat. And so in that sense you could say that was bad news for, you know, really most people, I think, that the stock market got completely out of line with the fundamentals in the economy.
But the indices do reflect, don't they, what the markets believe the economy is going to do? Should we not pay attention if worldwide traders are flinching at, for example, Alan Greenspan's remarks or the banking scandal in China?
Well, again, you know, there are grounds for concern in the economy. But I would focus on those, rather than the market's reactions, 'cause you know, there's an old line that, you know, the stock market's predicted nine of the last five recessions. I mean, the markets often move in erratic ways for reasons that can't be pinned on any fundamentals.

And just take the most obvious example, going back to 1987. They had this huge crash--you know, I think it was a 20 percent downturn in the major indices, and you go look at the economic news at that time, you'd be really hard-pressed to find anything that happened in that immediate period, the few days leading up to the crash.

You know, in that case you could point to economic troubles. You know, there're always clouds on the horizon. But, you know, the reality was the economy continued to grow for almost three more years. So there wasn't an imminent recession. There was nothing really bad that you could point to, but yet, the markets plummeted.
Clearly, we are, many of us, fixated on the NASDAQ or the Dow or whatever. It shows up on NPR [LAUGHS], for example, at the top of every hour with the news summary. What's behind that?
Well, I think there are two things. One is it's very nice to think that you have a simple number that can just sort of quantify everything. And a lot of things you can. You know, if I know how many points someone scores in a basketball game, I have a pretty good idea of how good a player they are. So it's convenient.

The other thing is there obviously is a bias here. You know, if you look at who often listens to the news and, to some extent, who reports the news, the people who run the newspapers, the radio stations, the television stations, disproportionately these are people who are likely to own stock and might own a significant amount of stock. So for them, you know, it is a big deal.
If you had been the boss of journalism on Tuesday, what marching orders would you have issued the troops?
I would give them two orders. First off, keep your distance from the market. Report on stock prices like you're reporting about oil prices. You know, oil prices, if they go up, and you happen to own an oil well, own shares in Exxon Mobil you're very, very happy. Otherwise, it may not necessarily be very good news for you.

The second is that there are real issues about the health of the economy. Alan Greenspan's comments deserve to be taken seriously. If nothing else, he's obviously an astute observer of the economy. There are other economic news--homes sales. You know, there was other news that came out that day.

So focus on the issues about the underlying economy, and separate that from the stock market.
Okay, I think it's pretty clear now that you think the stock market is overcovered, or at least not covered with the proper perspective. But what stories in the economy do you think are undercovered? And what should we in the media be paying more attention to?
Well, I'll give you two stories that I think are hugely undercovered. One of them is certainly the trade situation, because people have talked about the budget deficit; the trade deficit is three times as large. We get reports on that every month from the Commerce Department. I think that deserves a lot more attention than it gets.

The other one is just really the dollars and cents for most people. Most people get the vast majority of their income from their wages. And, you know, the trends and wages--we get wage data from the Bureau of Labor Statistics every month with the Employment Report--that usually gets some passing mention.

But in terms of how people are doing, the rate of wage growth is far, far more important than what the stock market's doing, because for most people that really is their living standard. If wages are growing well, they're doing better. They can look to being wealthier in their future. Hopefully, their kids will be better off. That's a good thing for them.

If wages are stagnating, as has been the case through much of the last 25 years, that's not goods, even if the stock market's going through the roof.
Dean, thank you so much.
Well, thanks a lot for having me on.
Dean Baker is co-director of the Center for Economic and Policy Research. His blog about economics reporting is called Beat the Press. It can be found on the American Prospect website.