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The stock market is not the economy. In fact, rising stock market can be bad news for most!
Annual rise in stock value
1989-2017: 7.5%
1966-1988: 1.6%
Annual rise in corporate output
1989-2017: 2.6%
1966-1988: 3.9%
Corporations produced *less* but gained more in value!
Why?
Annual rise in stock value
1989-2017: 7.5%
1966-1988: 1.6%
Annual rise in corporate output
1989-2017: 2.6%
1966-1988: 3.9%
Corporations produced *less* but gained more in value!
Why?
First, stock market only values profits, and more of corporate output is now going to profits at the expense of workers
Annual rise in corporate profit
1989-2017: 5.1%
1966-1988: 1.8%
Annual rise in corporate profit
1989-2017: 5.1%
1966-1988: 1.8%
Second, the same dollar of profit is now valued more by the markets (the "valuation effect").
See this terrific paper by @ProfGreenwald, Lettau and Ludvigson
https://www.nber.org/system/files/working_papers/w25769/w25769.pdf
See this terrific paper by @ProfGreenwald, Lettau and Ludvigson
https://www.nber.org/system/files/working_papers/w25769/w25769.pdf
The additional irony is that even the valuation effect is at least partly driven by rising inequality.
See the "indebted demand" paper for the argument https://scholar.harvard.edu/straub/publications/indebted-demand
See the "indebted demand" paper for the argument https://scholar.harvard.edu/straub/publications/indebted-demand
