Our old FOX Index, dating back to 2008, defined a “healthy” market as a Dow of 12,000, an S&P 500 of 1,300, and a NASDAQ of 2,500. Certainly, it would be “unhealthy” to drop below those levels, but in the meantime, let’s follow Wall Street into outer space with an Index that marks above/below a Dow of 15,000, an S&P 500 of 1,600, and a NASDAQ of 3,500, yielding a total of 20,100. Given, therefore, today’s close of the three indexes at 20,080, we are (see chart) a mere 20 points below leaving the atmosphere. (The old FOX Index would now be +4,280.)
while the financial markets are soaring, the real economy appears to be mired in an endless slog. That discrepancy raises a troubling question: How long can financial portfolios continue to swell if wages, employment and corporate revenue remain constrained?
“We aren’t seeing an extraordinary level of economic growth,” [David J. Kostin, equity strategist at Goldman Sachs] said, “so companies need to take other measures to enhance profits, [including] being very careful about costs and about hiring.” [W]hich helps explain the anemic labor market.
Economics writer Robert Samuelson, in the Washington Post, takes his crack at explaining our current job creation difficulties. Samuelson believes we are passing through the collapse of "entitlement," as articulated by Bill Clinton. The former president said that in America, "If you work hard and play by the rules, you'll have the freedom and opportunity to pursue your own dreams."
But Samuelson notes that millions of Americans who have "played by the rules" are either “in distress or fear that they might be.” In a recent poll, 65% of respondents said today's middle class has less "job and financial security" than did their parents, 52% asserted there is less "opportunity to get ahead," while only 51% of workers were confident they'll have enough to retire comfortably, down from 70% in 2007.
Samuelson writes, “Poverty is stubborn. Many schools seem inadequate. The ‘safety net,’ private and public, is besieged.”
Clinton’s “entitlement,” Samuelson concludes, ultimately rested on optimistic, unrealistic assumptions:
First, that economists knew enough to moderate the business cycle, guaranteeing jobs for most. [F]rom 1980 to 2007, the economy created 47 million non-farm jobs. The Great Recession [ended] faith in a crude stability.
Second, that large corporations . . . could provide secure jobs and generous benefits -- health insurance, pensions. . . Deregulation, foreign competition and new technologies [mean c]ompanies [now cut] jobs and [squeeze] fringe benefits.
Third, that [technology] would lift living standards and finance bigger government[, able to pay] for new programs by taking a fixed share of rising incomes. In[stead,] income inequality has dampened middle-class living standards, while . . . soaring health costs and . . . an aging population [claim more] taxes.
Fourth, that lifestyle choices . . . would expand individual freedom without . . . adverse . . . consequences. Wrong. Family breakdown has deepened poverty and worsened children's prospects. . . 30% of children live with [one] or no parent.
Samuelson’s final point loops back to a constant theme of this blog--the economic cost of family breakdown.