Editorial: A Wall Street-Main Street Disconnect

  • Trader John Panin, right, works on the floor of the New York Stock Exchange, Friday, Feb. 9, 2018. Stocks struggled to stabilize Friday as investors sent prices climbing, then slumping in unsteady trading a day after the market entered its first correction in two years. (AP Photo/Richard Drew)

Saturday, February 10, 2018

Despite what President Trump would have us think, the stock market is not the economy.

What precipitated the recent tanking of U.S, and then global, markets? Analysts point to what most of us would consider excellent economic news. Average hourly earnings for U.S. workers surged 2.9 percent in January over a year earlier, and private-sector wages and salaries increased 2.8 percent in the final quarter of 2017. Together this signaled that long-anticipated and long-unrealized wage growth was finally occurring.

The absence of higher wages amid a long economic expansion has been a mystery to economists, but a tight labor market appears to finally be forcing employers to pay more. And that means people will have more money to purchase goods and services, which should be a positive not only for them but for the broader economy.

Investors didn’t see it that way, though. They peered into the tea leaves and told their fortunes that it was time to flee stocks in favor of bonds or cash. That’s because higher wages might prompt the Federal Reserve to raise interest rates more quickly than expected in order to head off inflation. The prospect of an end of the post-Great-Recession era of easy access to money, not only in the United States but also in Europe and Japan, was sufficiently unsettling that markets gyrated wildly.

Trump, who has missed no opportunity to trumpet the heights the markets have reached during his tenure (although their ascension began well before his own), had little to say on the occasion of their free fall.

No surprise there, but the second irony at work is that Trump’s signature success in office, cutting taxes a lot for the billionaire class and a little for everybody else, also played a role in fraying investors’ nerves. Some economists warned even as the $1.5 trillion tax cut was working its way through Congress that the economy, which was expanding slowly but steadily, did not need the tax-cut stimulus. Indeed, according to The New York Times, investors fret that the tax cut will unleash more inflation and cause the Fed to raise interest rates even faster.

And then there’s the deficit, which also may be playing a role in the jitters. Since Congress failed to cut spending to pay for the enormous tax cut it bestowed, the federal government anticipates borrowing on the order of almost $1 trillion this year, compared with $519 billion last year.

For all we know, the financial markets may recover broadly and go on from strength to strength. But just don’t confuse their performance with what’s in the best interests of ordinary people. That goes for Congress as well. We note that House Speaker Paul Ryan recently crowed on Twitter about how the new tax law resulted in a $1.50 increase in weekly take-home pay for a secretary at a Pennsylvania high school. Our first thought was that Ryan was slyly displaying a heretofore unrecognized penchant for black humor; our second was that his distance from day-to-day life in these United States was so great as to render him clueless.