Wrong Road to Recovery
If you listened closely, you could hear the country exhale these past few weeks as Americans opened their 401(k) statements and began to believe they might just be able to retire at 70 or 72 — instead of 80, as it seemed just a few months ago.
Cable television, especially the business network CNBC, is breathlessly telling us that stocks may have “hit bottom,” while stories about Wall Street again feature quotes from analysts who say that now may be the time to “get back in,” so long as people pick and choose their investments carefully. As the markets closed for Good Friday, the S&P 500 had soared 27 percent since March 9, the fastest gain that the broad index of American stocks had posted since the Great Depression.
Even President Barack Obama, who at times looked and sounded positively shaken during those first few weeks after the election when he was learning the full depth and breadth of the economic crisis he would be inheriting, has helpfully offered the assessment that he sees “glimmers of hope” in the economy.
So why is this giving me the creeps?
Because we’ve been here, done this. And it didn’t work out so well.
Notwithstanding the day-to-day stock market fluctuations that so many follow the way farmers used to look at the changeable sky, we seem to be approaching a happy state of myopia where we begin to believe that Wall Street, big banks and hypersmart treasury secretaries are the answers to our economic problems. We’re not yet into “irrational exuberance,” because that usually comes later, after the latest “bubble” has formed but has not quite reached its bursting point.
Nothing right now looks like a bubble. But this does look an awfully lot like the years we spent fooling ourselves into thinking that the buying and selling of paper assets is economically the same as the buying and selling of tangible goods that are made by real workers who have actual paychecks with which to purchase products that they, and other workers like them, made.
Some people refer to this dangerous divergence between market psychology and the people who are supposed to make markets work as the “disconnect between Wall Street and Main Street.” It is a hackneyed phrase that has become overused — but it has become overused because it is so true.
Out in the real economy, monthly job losses are still ruinous. Paychecks for those lucky enough to remain on the job are stagnant or falling, according to the Labor Department, with manufacturing workers suffering a serious erosion in earnings. And since the value of people’s paychecks — not the value of their homes or their retirement funds — determines how much consumers can buy, retailers again reported lousy sales in March. The big exception was Wal-Mart, the giant discounter that has made its name (and its profits) by selling stuff cheaply to people who are at times so eager for a bargain they literally stampede into Wal-Mart stores — as they did during the last holiday shopping season, fatally trampling a Wal-Mart worker at a store on Long Island.
There are a couple of other genuinely scary indicators. The International Energy Agency is predicting that worldwide oil demand — like it or not, still a crucial marker of global economic health — is continuing to fall. “The pace of contraction is close to early 1980s levels, with a growing consensus that economic and oil demand recovery will be deferred to 2010,” the IEA said last week.
And even when something resembling an upturn in genuine economic activity becomes evident, it will be because the U.S. government is pumping record sums of money into the economy, in the form of the giant stimulus package Obama signed shortly after he took office and also the billions in cash the Federal Reserve has made available to financial institutions.
So how will we know things are getting better in the real world, instead of in the financial world, which remains so stubbornly divorced from reality? When average people start making purchases they might have postponed six months or a year ago.
The transaction is so fundamental that you have to wonder why the people who get paid to tell us the condition of the “fundamentals” still don’t get it.
Marie Cocco’s e-mail address is mariecocco(at)washpost.com. © 2009, Washington Post Writers GroupWAIT, BEFORE YOU GO…
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