The altar of economic faith
Happy days are here again, baby.
The Dow hit an all-time high last week; as I write this Tuesday, the Dow Jones Industrial Average is at 14,259.30, up 130 points just today.
Irrational exuberance, anyone?
This is fantastic news, I tell you. It means ... well, what?
Does it mean Americans are richer, that the underlying "real" economy is hitting new heights?
Er, no. The unemployment rate remains mired at 7.9 percent, which is misleading because it doesn't take into account all the people who have stopped looking for work.
There are more than 47 million Americans on food stamps. Consumer confidence is in the dumps -- most of the country is still adjusting to the restoration of the payroll tax, meaning their paychecks have gotten smaller.
Corporate profits are soaring, but with so many out of work, "companies face little pressure to raise salaries, while productivity gains allow them to increase sales without adding workers," The New York Times tells us.
So, er, the soaring Dow has benefited you how?
Oh, right, your 401(k). Well, if you have one, I bet it does look pretty impressive. And maybe, based on that, you'll go out and spend lotsa money! Come on, look at that pile you've socked away for retirement --why not go buy a 51-inch LED TV, or maybe two?
It's called the "wealth effect"; with stocks up, you feel wealthier, and you spend as if you were wealthier. And that solves all our problems -- until it becomes the main problem itself.
Stocks are soaring for one basic reason: The Federal Reserve continues to conjure money from thin air, buying "assets" with it, pumping money into the big banks that are supposed to lend it to you and me and the company down the street. "If companies use that money to buy equipment, and households use it to buy homes and cars, the economy gets a jump," reports Reuters.
Right. But what if that money doesn't get pumped into the "real economy"? What if it finds its way into stocks and commodities and bonds instead?
The Fed's "easing" pushes interest rates down. Among other things, that keeps government borrowing costs low, so we can just keep on spending money we don't have. But it also pushes you and me and Granny out of "safe" investments, where our money earns a pittance, and into "risk assets" -- stocks, bonds, commodities.
Want to know why gas prices are stuck around $3.60 per gallon? Easing is one reason. "Investing in commodities can push up prices on things like gas, meat (because of feed corn prices), bread (because of wheat prices), and even orange juice," wrote Anthony Randazzo at Reason magazine last fall. "There certainly have been other contributors to commodities prices going up, but if the Fed has boosted stocks, they've boosted commodities too."
This is, you understand, the only arrow left in our government's quiver. This is the only "answer" we have to high unemployment and eroding wages. If you can be made to feel wealthier than you are, it could set things in motion. If businesses take out more low-interest loans to expand -- here in America, we hope -- maybe they'll hire some more workers.
If not? More easing. Because what else are we going to do?
And so the Dow's dizzying heights are touted as evidence that the economy was improving. Clearly for those at the top of the food chain, it is. But down here, where most reside, it isn't. And the insinuation is that we're wrong, we're not getting it, there are "green shoots" everywhere and we should do our part by throwing caution to the wind, because only then -- when we sacrifice ourselves on this altar of economic faith -- can things truly improve.
That convinces no one. What happens instead is that people lose even more faith in their government. As if there was much left to lose.
Gil Smart is a Lancaster Newspapers staff writer. Email him at gsmart@lnpnews,com, or phone 291-8817.