The axiom becomes obvious when you look at how the markets fared last year. In 2020, as the virus surged, economic growth crashed, unemployment shot up, poverty spiked, and democracy crumbled, what happened to stock prices? They soared to record highs, of course.
Why doesn’t the market track the real world? There are many reasons, but a big one has to do with wealth and access. Although slightly more than half of Americans own some stock (for instance, as part of a retirement fund), a huge share of the value in stocks is held by a tiny number of Americans.
The wealthiest 1 percent of Americans hold nearly 40 percent of the value of stock-holding accounts; the wealthiest 10 percent hold 84 percent of the value. The stock market also reflects the value of just a tiny slice of the American business world — according to one expert, in 2015 there were 600,000 American companies with at least 20 employees, of which just 3,600 were publicly listed.
And yet, despite this self-evident disconnect, we are flooded every day with news about the market, the numbers presented to us with all the importance of the weather forecast. There’s the Nasdaq index on the top of The Times’s home page, and here’s the Dow repeated with the hourly news on NPR. Want to know how well a president’s speech went? Look to see how the S&P 500 reacted.
People reach for stock indexes as a benchmark for American vitality for the same reason we get fast food when we’re hungry — not because it’s any good, but because it’s familiar and it’s what’s available. The economy, like the world, is messy and complex. Every day brings success for some companies and failure for others, promotions for some workers and layoffs for others. More objective measures of what’s happening tend to be broad and infrequent — the jobs numbers come once a month, for instance.
The markets, though, spit out numbers every weekday, offering a comforting — if illusory — sense of precision about an economic system otherwise too vast to comprehend. For a lot of people, the markets have also become skeleton keys for unlocking a brighter future. Since the Reagan era, Americans have been encouraged to play the market as if our lives depend on it, because they increasingly do; today, the markets shape the quality of your retirement, your kids’ education, maybe even whether you’ll get health care.
Leaving such important matters to the whims of the stock market makes little sense to me; it’s more equitable, not to mention more straightforward and efficient, for the government to just pay for college rather than create tax-advantaged investment vehicles allowing the wealthy to play the casino to pay for college.