Friday, August 4, 2017

The Rising Stock Market and Low Wage Growth

The stock market has risen 22% since Donald Trump's inauguration.  That's a flashy number!  And it's sure to leave died-in-the-wool Republicans impressed.

However, it doesn't mean squat in terms of normal folks getting a raise.  The stock market is driven by corporate profits, which are not predicated on investment.  Take it away, Dean Baker (emphasis added mine):

Note that this has nothing to do with investment and growth. The relationship between corporate profits and investment has always been weak. In fact, the strongest period for investment (measured as a share of GDP), was the worst period for profits (the late 1970s and early 1980s). So there is little reason to believe that the Trump tax cuts will spur investment and growth. (Dean Baker)

Please, I beg you, read Dean Baker's short article on the subject.  There is little correlation between stock market growth and "real" economic growth -- i.e., businesses expanding, new hires, salaries going up, increased amounts of investment in new machinery, facilities and the like.  
This Politico article makes essentially the same point, and also points out that the economy just hasn't changed much from the Obama years.  The economic recovery began under Obama and has trudged onward without change into the early Trump years.  It's sort of astounding, when you consider all the political strum-und-drang, that this would be so.  But it is so!

The characteristics of the Obama-Trump economic recovery are: a steady number of jobs added every month (and corresponding low unemployment rate), but a stubbornly high rate of people who are still sitting out the job market entirely, eight plus years after the huge recession, and corresponding minimal wage growth:

Even as the unemployment rate has fallen, and other economic indicators, like home prices and the stock market, have been healthy, wages have barely budged. Yes, they’ve gone up, as Mr. Trump tweeted, but average hourly earnings were up 2.5 percent over the last 12 months as of July. That’s actually lower than the 2.9 percent pace in December 2016, just before he took office.  (NY Times)

You don't even need to read this New York times article -- just look at the pretty charts.  It's worth your skim.

If the economy is basically the same, why has the stock market risen so rapidly since Trump was elected?  Simple!  People who rely on stock ownership rather than salary as their predominant source of income -- i.e., the wealthiest people in the country -- expect a huge tax cut under the Trump regime.  That expectation, coupled with the belief that the market is sort of immune to the chaos in Washington, is what keeps the stock market afloat.

Meanwhile, the rest of us wait for big raises, some ability to send our children to college, and some sort of relief with our medical expenses.  We're gonna have to keep waiting quite a while on those.

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