The Stock Market Does Not Represent the U.S. Economy

We don’t pretend to be experts either in the stock market or the economy in general. However, as Bob Dylan put it, “You don’t need a weatherman to know which way the wind blows,” and similarly, the average American doesn’t need a Ph.D. in economics to understand that the recent record height of the stock market indices — the S&P 500, the Dow Jones 30 Industrials, and the Nasdaq — does not reflect the health of the U.S. economy. Increasing economic inequality — what has become known as the disconnect between Wall St. and Main St. — has been the broad trend of American life for the past 40 years.

Ever since Ronald Reagan (aided and abetted by the Democrats, by the way) deregulated the banking and other industries, gutted the labor unions, reduced tax rates for the rich, and abrogated the antitrust laws, America’s immense wealth has become concentrated in the hands of the very few to an extent never before seen in the modern world. Consider that the top 1% of American households now control more than half of the equity in U.S. public and private companies, according to data from the Federal Reserve.

In relative terms, the top 1% now has more wealth than the entire middle class and as much wealth as 90% of all Americans. The ratio of the salary of a CEO vs. the salary of the typical worker of a publicly-traded company in 1965 was about 20-1. That ratio today is about 350-1. This is only part of the story, however.

The real reason for the increase in the disparity between the top 1% and everyone else is that middle-class jobs in America have disappeared at an alarming rate to the benefit of the top 1%. According to a Brookings Institution report, the two most highly-valued companies in the country in 1962 — AT&T and General Motors — employed nearly 1.2 million people combined. Last year, the two largest companies in the S&P 500 — Microsoft and Apple — employed just 280,000 persons.

Apple puts together almost all of its products in China, using third-party manufacturing companies that operate the modern-day equivalent of sweatshops. Further, consider that the wealthiest top 10 percent of Americans own about 84 percent of U.S. stocks, with the top 1 percent owning 40 percent. So put those two trends together — fewer middle class jobs and stock ownership  of American companies concentrated in the hands of a few — and the result simply is this: Income that formerly went to the American middle-class has shifted to countries with low-wage workers, with the wealthy netting the difference.

There also is another factor at play. The health of the U.S. stock market not only does not represent the U.S. economy, it also does not even represent the stock market itself. The five largest listed companies — Microsoft, Apple, Amazon, Alphabet (Google), and Facebook — have continued to climb this year. Through the end of April, these companies were up roughly 10 percent, while the 495 other companies in the S&P were down 13 percent. These highly valued firms — Microsoft, Amazon and Apple are each worth more than $1 trillion — now account for about one-fifth of the market value of the entire index, the highest level in 30 years.

The coronavirus pandemic is exacerbating the trend of the past 40 years: The rich are getting richer, while everybody else is getting poorer and deeper into debt. Without government policies — higher tax rates on the wealthy, vigorous antitrust enforcement, and support of labor unions — that will bring back into alignment the economic forces that created the great American middle-class of the 1950s and 60s, America is destined to become an oligarchy, otherwise known as a banana republic, with grave consequences for our democracy. A phrase attributed to Louis Brandeis succinctly put it this way, “We must make our choice. We may have democracy, or we may have wealth concentrated in the hands of a few, but we can’t have both.”

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