Cross-posted at Reports from the Economic Front.
The stock market looms large in our understanding of the economy. The business news is often little more than a report on the movement of the market. High school economics classes often introduce the study of the economy to students by encouraging them to pick and follow a favorite stock. Managers of corporations are judged by how well their actions result in higher stock prices.
All this could easily lead one to think that the great majority of Americans are stockholders. In fact, as the chart below shows, very few Americans own significant shares of stock and therefore directly benefit from the market’s rise.
It is easy to understand why the top earners are happy with this identification of the economy with the stock market. It ensures that economic activity is largely organized and outcomes evaluated with their interests in mind. What is not so easy to understand is why the great majority of working people continue to accept this identification.
Martin Hart-Landsberg is a professor of economics at Lewis and Clark College. You can follow him at Reports from the Economic Front.
Comments 6
Yrro Simyarin — October 1, 2012
Is this the whole picture? Most pension plans are still backed by a market account that will have significant stock holdings, even if it doesn't show up in a person's direct net worth like an IRA or a 401k will. The article seems to indicate that it includes individual retirement plans, but not pensions.
I *am* amazed at how little people are saving for retirement... of course, when our entire culture is set up to discourage it in favor of immediate spending and debt (and extra taxes on people who have saved) maybe I shouldn't be.
As an aside, it isn't that hard for a working family to make the 80% percentile in *wealth* without being anywhere close to it in *income*. Live reasonably simply, have a steady paycheck until you retire at 65, and put a reasonable amount in savings. Just by having been working longer you can have savings and net wealth that will dwarf that held by most of the people younger than you, even if they're making doctors' salaries.
Who Benefits from a Rise in the Stock Market? » Sociological Images « National-Express2011 — October 3, 2012
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decius — October 4, 2012
The total value of the stock of a (publicly traded) company is the best-guess of the value of the company- everyone who owns stock thinks that the company is worth more than the market price, and nobody who doesn't own stock thinks so.
When stock prices go up (measured in constant dollars), it means that the pie is getting bigger- the only way that MegaCorp can sell more units of product is if people are able to afford to buy them. Therefore, if MegaCorp is expected to sell them, people are expected to afford them. Since the market is fairly efficient about rewarding accurate predictions about the future, a raise across the board in stock prices is a fairly good leading indicator of a raise in total disposable income.
Laura Lee — December 27, 2012
I would say that this is because no one has come up with something like a Dow Jones average that news outlets can easily report on that measures the interests of other stake holders. The news will report on what is easy to quantify.
Richard Head — December 27, 2012
Fat white closet homosexuals, that's who.