7
What good does the Dow rising do?
Robert Reich
To view this content, Javascript must be enabled and Adobe Flash Player must be installed.
TEXT OF COMMENTARY
Kai Ryssdal: The Dow Industrials made another run at that theoretically magical 10,000 mark today. The blue chips topped 9,900 at one point before running out of gas. So how long can the rally last? I don't really know.
But commentator Robert Reich say that's not really the question we ought to be asking anyway.
ROBERT REICH: So how can the Dow be flirting with 10,000 when consumers, who make up 70 percent of the economy, have had to cut way back on buying because they have no money? Jobs continue to disappear. Houses can no longer function as piggy banks because they're worth far less. And Americans are compelled to pay off their debts and start to save, for the first time in a decade.
Even more curious, how can the Dow be so far up when every business and Wall Street executive I come across tells me government is crushing the economy with its huge deficits, and its supposed "takeover" of health care, autos, housing, energy, and finance? Their anguished cries of "socialism" are almost drowning out all their cheers over the surging Dow.
The explanation is simple. The great consumer retreat from the market is being offset by government's advance into the market. Consumer debt is way down from its peak in 2006, government debt is way up. Consumer spending is down, government spending is up. Why have housing prices stopped falling and new housing starts begun? Because the Fed is keeping mortgage rates low by buying up Fannie and Freddie's paper.
Why is the health care sector booming? Because the government is about to expand coverage to tens of millions more Americans. Why is the financial sector surging? Because the Fed is keeping interest rates near zero, and the rest of the government is still guaranteeing any bank too big to fail will be bailed out. Why are federal contractors doing so well? Because the stimulus has kicked in.
In other words, the Dow is up despite the biggest consumer retreat from the market since the Great Depression because of the very thing so many executives are complaining about, which is government's expansion. And regardless of what you call it -- Keynesianism, socialism, pragmatism -- it's doing wonders for business, especially big business and Wall Street.
The problem is, it's not doing all that much for average working Americans, who continue to lose their jobs, whose belts continue to tighten, and who get almost nothing out of the rising Dow.
RYSSDAL: Robert Reich is a professor of public policy at the University of California, Berkeley.
Mr. Reich's explanation is absolutely correct--but incomplete. The biggest economic engine in America (and the world)is the US private sector, which accounts for appx. 70% of all spending, gov't spending accounting for the rest (thru all of US history, until after WWII, gov't. spent about 10%). Now the private sector is shrinking, and spending proportionally even less, while gov't spending is skyrocketing. Regrettably, it's stimulating only a small fraction of the private sector, most noticeably the bankers and traders. The rest of the engine is dying, in part for lack of circulation, and from the results of uncertainty. And Wall Street (and the Federal government)are still too short-sighted to realize that the private sector is not to big to be killed by strangulation. To complete the circle--where do the billions in gov't props come from? The PRIVATE SECTOR, that produces All the wealth that there is. The Feds only collect and redistribute some of it. The snake is eating its own tail, but nobody wants to know it. Again.
Mr. Reich explains well what's going on - and in doing so undermines the agenda of the left. Despite big gov't involvement (increased spending, anticipated expansion of healthcare, artificially supporting housing industry, etc) the average working american is no better off. Some things *appear* to be better (e.g. the DOW) but they're really not. Despite gov't efforts (TARP, Cash-for-clunkers, stimulus spending, healthcare promises) unemployment continues to climb, banks aren't lending. Big gov't is NOT the answer.
This is truely one of the first answers I have found to my question "Why is the DOW still going up?" This makes so much sense. I am going to take a look at other opinions, but this to me is the obvious glaring one that has probably evaded me because much of the financial world is still a little new to me. Thank you.
Thank you Mr. Reich for such a concise and digestible report on a subject that is hard to swallow. You have outlined the dynamics of the current economy in terms that the layman can understand; something that is sorely needed. Now please do the same for us about healthcare!!
David Rigby, I'm not sure how sensible the concept even is, to say "purchasers" are such and such percent of the economy. Seems a daft notion to pin down.
Robert Reich provides an insight provided by no other commentator out there, brilliantly moving from details to their place in the big picture. He is a great asset to Marketplace.
Bingo!
Robert Reich is easily the op/ed man who most often has his finger exactly on the pulse of the nation and identifies the crux any given situation.
The disconnect between the economies of "Wall Street" vs. that of the rest of the country is something I've found endlessly curious and inexplicable... why stock averages keep rising while the housing values and employment numbers keep falling.
