The Disconnect Between the Stock Market and the Real Economy Is Destroying Our Lives

Stocks are the wall that protects the rich from the consequences of this crisis

Hamilton Nolan May 5, 2020

The Fearless Girl statue stands nearly alone in front of the New York Stock Exchange near Wall Street during the coronavirus pandemic on April 25, 2020 in New York City. (Photo by Justin Heiman/Getty Images)

In the month of April — as 30 mil­lion Amer­i­cans filed for unem­ploy­ment, and des­ti­tute small busi­ness­es closed for­ev­er, and rent strikes were demand­ed, and city and state gov­ern­ments fore­cast years of grim aus­ter­i­ty — the U.S. stock mar­ket had its best month in more than 30 years. Day after day, we were treat­ed to sto­ries of absolute ruin in the real econ­o­my, right next to anoth­er glo­ri­ous rise in stocks. After a sharp sell­off in March, the S&P 500 index has bounced back to where it was in the fall of 2019, as if that lit­tle dev­as­tat­ing glob­al pan­dem­ic were noth­ing more than a fleet­ing, momen­tary annoyance.

Prosperity is advertised in aggregate, but it is only experienced by individuals.

The glar­ing dis­con­nect between the real econ­o­my, of work­ing humans with jobs and bills to pay, and the investor class econ­o­my, embod­ied by the stock mar­ket, is one of the most bru­tal and devi­ous polit­i­cal issues of this age of cri­sis in which we’re liv­ing. Though free mar­ke­teers like to boast of the fact that more than half of Amer­i­cans now own stocks, the fact is that most of them own too few stocks to mat­ter to their day-to-day eco­nom­ic lives. Half of all stocks in Amer­i­ca are owned by the wealth­i­est 1% of peo­ple. They are the stock market’s tar­get audi­ence and prime movers. The pri­ma­ry effect of high stock prices today is to insu­late the rich from the con­se­quences of the wrecked real econ­o­my. So long as stocks are doing okay, there is no need for the class of peo­ple who con­trol most of America’s insti­tu­tions to feel much urgency to save the lives of every­one. A strong stock mar­ket is like a stur­dy wall around the rich and pow­er­ful. You can stay out­side and lose your job and starve and die, and it won’t pen­e­trate their serene bub­ble very much at all.

There are two ways to approach the ques­tion of why the stock mar­ket has seemed so imper­vi­ous to the state of the real world. The first is to focus on the tech­ni­cal rea­sons. The stock mar­ket is for­ward-look­ing, so prices reflect what investors think will hap­pen in the future, rather than right now; investors are over­ly opti­mistic of a coro­n­avirus vac­cine, and exhibit­ing the flaws in the effi­cient mar­kets the­o­ry; and the stock mar­ket is pric­ing in a vast injec­tion of free mon­ey from the Fed­er­al Reserve and from its good friends in Con­gress, rais­ing expec­ta­tions of a soft buffer to take the edge off of the cat­a­stro­phe. There is, on Wall Street itself, a spir­it­ed debate over whether stock prices are still too high or not, but the final proof is in the num­bers. And the num­bers still say that if you are the sort of per­son who derives most of your income from invest­ments, then the pain accru­ing to those who must work at a job for a liv­ing is noth­ing but a faint and far­away dream to you right now.

It stands to rea­son that because busi­ness­es must ulti­mate­ly derive their prof­its from the spend­ing of human beings, a hor­ri­ble eco­nom­ic cri­sis that pre­vents every­one from spend­ing mon­ey would be dead­ly for the stock prices of those busi­ness­es. But the cap­i­tal mar­kets are sub­ject to all man­ner of trick­ery and inter­ven­tion that can insu­late them — for a while, at least — from what is hap­pen­ing in the world at large. And that breath­ing peri­od may be all that savvy investors real­ly need to make sure they emerge rel­a­tive­ly unscathed.

Robert Scott, a senior econ­o­mist at the Eco­nom­ic Pol­i­cy Insti­tute, says the stock mar­ket at the moment is being held up by Frankly, just finan­cial engi­neer­ing.” He esti­mates that by the time the government’s res­cue pack­ages are all tal­lied up, they could add up to $5 tril­lion of zero-inter­est loans to big busi­ness. Hard­ly the fabled lais­sez-faire ver­sion of cap­i­tal­ism, but of course the com­pa­nies will take it. (It is, after all, what their polit­i­cal con­tri­bu­tions have paid for.) Scott believes that the grav­i­ty of America’s crushed econ­o­my will even­tu­al­ly pull down the stock mar­ket again, but the cur­rent mea­sures will have served their pur­pose: Insid­ers are going to sell off their stock and make a killing,” he says, and long term investors will take the loss.”

Pros­per­i­ty is adver­tised in aggre­gate, but it is only expe­ri­enced by indi­vid­u­als. That is why Amer­i­ca has always been able to thrill to high GDP num­bers and healthy aver­age incomes with­out reck­on­ing with hor­rif­ic inequal­i­ty on the ground. (The fact that Jeff Bezos and a home­less per­son stand­ing in a room togeth­er have an aver­age net worth of $70 bil­lion each does not do a good job of reflect­ing the lived real­i­ty of each per­son.) America’s eco­nom­ic response to this cri­sis is a set of choic­es. And even the choic­es that under­mine the sur­vival of a large num­ber of peo­ple can do won­ders for the small­er num­ber of peo­ple whose wealth is in stocks. The death of small­er busi­ness­es means that the big play­ers in the stock mar­ket are antic­i­pat­ing a bumper year, full of bailouts and tax cuts and then aus­ter­i­ty when con­ve­nient,” says Suresh Naidu, an econ­o­mist at Colum­bia Uni­ver­si­ty who stud­ies labor and inequal­i­ty. The com­ing aus­ter­i­ty for the major­i­ty, which will be expe­ri­enced as job­less­ness and des­per­a­tion and a lack of pub­lic ser­vices when they are need­ed most, is the same thing as a stim­u­lus pro­gram for the eco­nom­i­cal­ly secure minority.

And this brings us to the sec­ond, and more use­ful, way to under­stand the bizarrely healthy stock mar­ket: as the result of a polit­i­cal choice. Brush away the finan­cial jar­gon that Wall Street uses to ward off inter­lop­ers and it is easy to see what is hap­pen­ing here. The coro­n­avirus forced our entire econ­o­my onto life sup­port from the fed­er­al gov­ern­ment. Instead of choos­ing to sup­port every­one dur­ing this tem­po­rary shut­down — guar­an­tee­ing the incomes of work­ers, insti­tut­ing wide­spread debt relief, and pour­ing stim­u­lus mon­ey direct­ly into the base of the wealth pyra­mid, which sup­ports every­thing else — the gov­ern­ment has instead done what it is built to do: pro­tect the biggest busi­ness­es and the accu­mu­lat­ed wealth of the rich­est peo­ple, herd­ing society’s most pow­er­ful into an eco­nom­ic fortress, con­tent in the knowl­edge that high unem­ploy­ment and aus­ter­i­ty for local gov­ern­ments will just cre­ate a pop­u­la­tion des­per­ate to work for even low­er wages than before. As the Trump admin­is­tra­tion pled help­less­ness over the fact that we have no good sys­tem for deliv­er­ing mon­ey direct­ly to indi­vid­u­als, it did not need to say that that, itself, is a pol­i­cy choice that is now serv­ing its intend­ed purpose.

This polit­i­cal choice is also a moral choice. It is a choice of whether or not to val­ue fair­ness. Either the incen­tives of every­one in soci­ety are aligned, or they are not. In Amer­i­ca, they are not. In fact, they are the oppo­site: the incen­tives of the rich, who live through stocks and the accu­mu­la­tion of cor­po­rate pow­er, are in fact opposed to the incen­tives of the vast major­i­ty of peo­ple, whose exis­tence is reduced to noth­ing more than labor income to be min­i­mized as much as pos­si­ble. An econ­o­my devised to prop up stock prices is an econ­o­my devised not to encour­age wide­spread pub­lic wealth, but rather the con­cen­tra­tion of pri­vate wealth. That is a choice. That is the incen­tive struc­ture we have built in this coun­try. The mys­ti­fy­ing gov­ern­ment response that allows a cri­sis of unem­ploy­ment and sud­den pover­ty to hap­pen and then refus­es to solve it even while dol­ing out tril­lions of dol­lars to busi­ness is in fact just Amer­i­can cap­i­tal­ism work­ing as we have designed it to.

Every time you look at the news — per­haps while wait­ing on hold with the dys­func­tion­al state unem­ploy­ment office — and see that the stock mar­ket is doing sur­pris­ing­ly well, do not think of it as just a col­lec­tion of num­bers with lit­tle bear­ing on your life. Think of it as a wall. That wall is pro­tect­ing the rich from what is hap­pen­ing to the rest of us. As long as the wall stays strong, the best that you can hope for is char­i­ty. That is a poor basis for our sal­va­tion. There is no healthy path out of this cri­sis, I’m sor­ry to say, until the rich feel just as much pain as every­one else. As it stands, it is too easy for them not to care.

Hamil­ton Nolan is a labor reporter for In These Times. He has spent the past decade writ­ing about labor and pol­i­tics for Gawk­er, Splin­ter, The Guardian, and else­where. You can reach him at Hamilton@​InTheseTimes.​com.

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