Stock Markets Are Not The Economy: Populist Politicians and Quick Profitability
Words by Stasi Kapetanos
Stock markets are centres in which the exchange of shares takes place. It can be an indicator of the state of the economy and its performance, and it can be used to trick people into thinking their government is doing a good job running things, when the real world suggests otherwise. The stock markets are, however, not the economy.
What the stock markets do tell us is whether or not investors are confident enough to be willing to buy shares in firms that they expect to be profitable in the future. Thus, the stock market gives us a pretty strong indication of the expected profitability of companies and businesses (particularly larger ones), this, however, does not give us the bigger picture. Quoting Distinguished Professor Austrian School Economist Steven Horwitz, assuming everything is okay as long as the stock markets are up is a major error, as you are “assuming that profitable firms mean a better economy.”
Beyond this, the stock market also has several other issues that weaken its strength and reliability as an indicator of the economy’s performance including: privatised stock exchanges increasingly geared towards increasing trading volume and high-frequency traders instead of any real public mandate, obsession with shareholder interests to the detriment of all other stakeholders and society at-large, and the lack of any real attempts to discourage investors from excessive speculation and lead them towards longer-term and more productive investments.
So given this, it’s no surprise to see that stock markets do well when people like Donald Trump, Boris Johnson, Jair Bolsonaro, and Scott Morrison are elected. It’s not that these aggressively neoliberal politicians are especially good economic managers as their propagandists like to present them as, nor is it that labour parties are running around purposefully trying to hold back economic growth for its own sake or out of some sort of masochistic desire for national stagnation.
The simple truth is that these man-of-people conservative populist politicians are serving the constituency. Not the electoral constituency, not you and me or even boomers with small but admirable investment portfolios. The people they’re actually benefiting are very large corporations and their hyper-wealthy and powerful shareholders whose interests do not lie in ensuring the long-term health of the economy overall, but rather the expected profitability of their own investments independent of anything else. If this means extolling the virtues of free trade in order to gain access to more easily exploitable markets or patriotically defending the industries in their own nation via protectionism and reckless trade wars or Brexit bonanzas, they’ll gladly do it. Ecological destruction of irreplaceable rainforests, and reefs, and indeed anything else that is the lifeblood of local communities is worth it for them if it means staying in the black.