Why I'm Not Doing Backflips Over The Dow
By Eran Lillestrand (not verified)
October 19, 2006 - 4:06pm ET
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The media is doing its best to show its class bias and/or ignorance with its wild celebrations of the 12,000 Dow. I like a good party as much as anyone, but being someone who works for a living, I didn’t get invited to this one, and neither did most of the rest of the country.
This story is straight from Econ 101. The stock market is supposed to represent the future profits of U.S. corporations. In principle, it goes up when expectations of future profits rise. So, the 12,000 Dow tells us that investors now are more optimistic about the prospects for future profits. Of course profits aren’t bad, if the economy is growing more rapidly and profits rise along with wages, then everyone can be happy.
Unfortunately, this does not seem to be the story here. Wages for most workers have been stagnant for the last five years, and there seems little prospect that wages will suddenly start rising in a big way anytime soon. In other words, this is not the '50s and '60s when a strong stock market was associated with rapid growth in both wages and profits, this is the '80s and first half of the '90s, when strong profit growth came at the expense of wages.
So make sure you keep track of who’s wearing the party hats. We know which side they’re on.
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Views expressed on this page are those of the authors and not necessarily those of Campaign for America's Future or Institute for America's Future