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.
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.