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Kimball Corson
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I am both an economist (three year M.A., Univ. of Chicago, 1968, in economics PhD program) and a lawyer (J.D., Univ. of Chicago, 1971). I had a Woodrow Wilson National Fellowship in economics and the good fortune to study at Chicago under seven Nobel Laureates in economics (received before or... More
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  • How Now the DOW? 1 comment
    Dec 24, 2010 2:39 AM

    So how is it that from about 1950 up to about 1985, the DOW Jones Industrial Average stayed mostly in  the range from about 250 to 1200, when America was growing and doing pretty well on average, and then, from about 1985 to the year 2000 -- a  mere fifteen years -- the DOW shot up to over 10,000, when middle class America realized almost no gains in real terms and the economy basically cycled from one boom and bust to the next?  This is a serious question.

    Do we face one of the biggest bubbles of all time?

    Is there an accounting explanation?

    What has happened here?

    We all need to know the answer which is not to be, I would add, meaningfully found in fighting with the question.,

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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  • bjdzyak
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    I'm not an economist, but looking at all the data available from the past 40ish years, there is a lot that could be influencing the DOW.


    I think that first and foremost is that it is typically the very wealthy who own most stocks. The percentage of people who own stock is actually very low. So, given that fact, when we look to pre-Reagan times, the nation was doing quite well post-1929 as wealth was more evenly distributed across the demographics. That would automatically put brakes on the pure numbers of the very wealthy who would be using their disposable income to put into the stock market.


    Enter Reaganomics which had the express purpose of redistributing wealth into the hands of a very few. Given a few years, say maybe five or so to give Reaganomics time to screw the Middle Class over, the wealthy get more wealthy and have more disposable income to dump into the stock market. That would account for the sudden jump and continued climb into today relative to what the graphs say about pre-Reagan days.


    Looking at the charts here it's easy to see that the DOW was growing steadily after the first Republican Great Depression due to the sensible policies begun by FDR. It grew to a quite comfortable point where the economy as a whole was working well. But the graphs speak for themselves: Reaganomics comes in and we see an almost sudden rise in the DOW as income disparity grows. Poor people don't have money to invest so naturally, the DOW was at an all time low in 1929. As the Middle Class grew in the 30s, 40s, and 50s, they continually had more money to invest, so the DOW gains. Then, arguably, the economy finds a balance point and the DOW holds steady.


    Using the word "stagnate" puts an unnecessary connotation on the economy. The "common wisdom" is that if the economy isn't "growing" (that is, if it's "stagnating") then there must be something wrong. If a company isn't "growing," then there must be something wrong. But that plays into the CONservative ideology that "success" can only be measured by "growth" and obtaining more. Can't "success" be judged by having a sustainable viable income? Why does it always have to mean that you are making "more" today than you did "yesterday"?


    But anyway, enter Milton Friedman and his Army of psychopaths led by Ronald Reagan in 1980 to disrupt the pleasant balance in the system. For those people, enough isn't enough. They need MORE and even that isn't enough. They must have it all because if they're not "earning" more today than they did yesterday, then they see themselves as failures. So, they rigged the system to ensure that income would be redistributed into the hands of the uberwealthy to make them even uberwealthier. A human being only needs to buy so much stuff which leaves the uberwealthy with LOTS of spare cash laying around that they can use for investments.


    I think that's it in a nutshell. The answer to restoring the balance is that Reaganomics must go and Milton Friedman should be stripped of that Nobel Prize and scorned in the same category as other psychopaths like Stalin and Hitler. Only Friedman's ideas have killed far more than those others ever could have dreamed.
    24 Dec 2010, 02:47 AM Reply Like
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