The one conservative talking point that has gotten the most traction
since Barack Obama won the election is that he's killing the stock
market with his big-government agenda. Conservatives pundits
started saying this in November, and mainstream news implies it
constantly. "Stocks are down almost 19 percent since the Obama
administration took office," reported ABC News recently. Msnbc has
been endlessly featuring a graph of the stock market's decline
since Obama took office. While Obama's economic policies have
gotten plenty of things wrong, the idea that they can be judged by
the stock market is unbelievably fatuous. To understand this ubiquitous notion, let us start at the bottom of
the conservative intellectual food chain and work our way up. The
crudest version of the Obama Bear Market hypothesis is put forward
by the likes of Rush Limbaugh, Sean Hannity, and Fred Barnes. Their
favorite data point is that the market tanked at several key
moments: the day after the 2008 presidential election, the day of
Obama's inauguration, and the day he signed the economic stimulus
bill. Clearly the markets panicked in reaction to Obama's incipient
big-government, wealth-confiscating agenda, right?
Sure, unless you realize that those events just might have been
priced into the market already. Obama, in case you forgot, was
considered a lock before Election Day. (On election eve, Intrade
had given Obama a 92 percent chance of winning.) Likewise, the vote
that made the stimulus bill a fait accompli took place several days
before the bill's signing. The real market-driving news came even
earlier, when Obama unveiled his plan. Contemporaneous reports on
the market reaction--The New York Times, December 9: "wall street
surges on stimulus hopes"--dug up little evidence of fears about
You may not believe me that pundits are citing the market's drop on
January 20 as an indictment of Obama. It's true! "The Dow fell
332.13 points on inauguration day," noted Barnes, holding this up
as evidence that "The market's view is that an Obamanomics-driven
economy looks grim." I'm trying to figure out the operating theory
here. One possibility is that, before January 20, investors thought
Obama would get cold feet, or that maybe President Bush would
surround the White House with tanks and stay forever. Alternatively,
the markets did know Obama would assume the presidency that day,
but got really depressed when it actually happened. Neither of
these possibilities speak well of the stock market as a rational
gauge of the country's economic future.
It is true, of course, that stocks have fallen sharply since Obama
won the election. A recent Wall Street Journal editorial noted that
the Dow Jones Industrial Average fell 25 percent over the first two
months of the year. "The dismaying message here," fretted the
oh-so-earnest Journal editors, "is that President Obama's policies
have become part of the economy's problem."
Well, this is more persuasive than the "Oh my God, some
long-anticipated event has finally happened so I'm selling my
stocks" hypothesis. But it still lacks some key details. Such as:
maybe some other economic events triggered the sell-off? No way,
continues the Journal:
So what has happened in the last two months? The economy has
received no great new outside shock. ... What is new is the
unveiling of Mr. Obama's agenda and his approach to governance.
Huh? First of all, Obama's agenda was unveiled well before the
election. Second, there have been constant new economic shocks,
from the massive downward revision of fourth quarter (pre-Obama)
GDP to the collapse of economies across the world.
Indeed, American stocks are merely suffering the same drop as stocks
in countries not subject to Obama's socialist agenda. While the Dow
did fall by 25 percent over the first two months of 2009, the
Global Dow fell by 26 percent. If Obama's agenda was the problem,
then you'd think U.S. stocks would fall further and faster.
The larger fallacy here is to assume that the stock market is a
proxy for the entire economy. Many people realize that the stock
market is an imperfect gauge. But it's not just an imperfect gauge
of the economy--it doesn't even attempt to measure the economy.
Stock prices represent the market's guess at the profitability of
corporations. While that's related to the health of the overall
economy, it's not the same thing, and sometimes the two diverge
sharply. During the Bush administration, for instance, corporate
profits soared while wages for most families flatlined.
One clear instance where Obama hurt the stock market came when Tim
Geithner announced the administration's financial rescue plan.
Stocks dropped that day. Was this a fair indictment of the plan? Or
a reaction to the possibility that the government might wipe out
shareholders? In other words, was the market drop a signal that
Obama's plan was bad for the economy as a whole or just bad for
bank stocks? The two propositions mean very different things.
This, alas, is the very distinction the stock-mongers on television
fail to grasp. The stock market has become the media's real-time
economic report card. Economic statistics that actually measure
broader material well-being come out once a month, some once a
year, others once a decade. The stock market updates instantly,
making it irresistible.
Cable channels, especially cnbc, have come to represent the
stock-centric view of the world. Stock televangelist Jim Cramer,
who has assailed Obama for "wealth destruction," perfectly embodies
the narrowness of this view. "Stocks, along with housing, are our
principal forms of wealth in this country," he asserts. In fact,
according to University of Wisconsin economist John Karl Scholz,
the richest 10 percent has more than half its net worth in stocks,
but those in the middle have less than 4 percent of their net worth
As a case in point, Cramer assailed Obama for "destroying the
profits in health care companies (one of the few areas still robust
in the economy)." The United States has the most expensive, least
efficient health care sector in the advanced world. The flipside of
that inefficiency is massive profits in the health care sector.
Anything that reduces waste necessarily reduces that profit. Cramer
naturally sees this as a disaster. But why should the rest of us