January 09, 2018
Well at least Catherine Rampell, one of its columnists, has made this discovery. She carefully explains why the run-up in the stock market over the last year is not something that Donald Trump really should be boasting about, at least to the 90 percent of the country that own little or no stock.
Most importantly Rampell makes the point that stocks are supposed to represent the future value of after-tax corporate profits. This means that if we have a corporate tax break which results in a redistribution of income from everyone who doesn’t much stock to those who do, then we should expect stock prices to rise. This is not good news for the economy, it just means shareholders have more and everyone else has less.
For some reason, very few people in the media seem to understand this basic economic point. They routinely refer to a rise in the stock market as good news.
It would be closer to the mark to think of stock prices as being like corn prices. Higher corn prices are great news if you grow a lot of corn. For everyone else, they just mean they will pay more for food.
Similarly, higher stock prices are great for the relatively small share of the population with large stock holdings. For everyone else, the main impact is likely to be higher house prices and rents, as the now richer stockholders bid up prices. There will be comparable stories in other areas where supply faces serious restrictions (e.g. tables at upscale restaurants, tickets to popular concerts or plays).
Anyhow, it would be good if the media stopped acting like high corn and stock prices were an economic barometer indicating the well-being of the country as a whole. And yes, I did also say this endlessly when Democrats were in the White House.
Comments