April and May were incredible months for the stock market, which has increased 30% since its March lows. April and May were also horrific months for workers, with 37.2 million filing for unemployment, the most on record for a two month period. That both of these statements are true offers real insight into what our economy is, who it works for, and what policies should be adopted to help it thrive.
If you ask President Donald Trump about this, he’ll give you a pretty clear answer. In response to the news Friday that the unemployment rate in May was only 13.3%, which is well above its Great Recession peak and reflects tens of millions of Americans unemployed and underemployed, the president tweeted that “It’s a stupendous number. It’s joyous, let’s call it like it is. The Market was right. It’s stunning!”
His line of reasoning isn’t new. Even before the current public health and economic disasters, Trump touted the strength of the economy and cited the S&P 500 as proof. And long before the current presidency, conservatives have argued that the best signs of a strong and healthy economy are high stock prices and corporate profits.
Fully divorced from economic reality
But if you ask pretty much anyone else across the country, you’ll hear a different perspective. Over the past two months, more than 37 million people have filed for unemployment and millions more have seen their hours cut (or have had to drop out of the workforce altogether). The unemployment rate in May for black people increased to 16.8%. Permanent job losses actually increased in May by almost 300,000, and since February, the economy has lost over 1 million permanent jobs. Some economists have estimated that the true overall unemployment rate for April was high as 34%. GDP — while not the most complete or representative measure of the economy — is expected to shrink as much as a cataclysmic 30% in the second quarter.
Frontline workers will tell you that they lack decent pay and safe working conditions. State and local governments are clamoring for resources as tax revenue dries up. The vast majority of small businesses have found themselves shut out of relief, for lack of an existing relationship with the big banks acting as the gatekeepers for loans. And millions upon millions of families are worried every night about how they will make it through the next day.
Clearly, for most people, the economy isn’t doing very well at all.
The New York Stock Exchange trading floor in June 2020.
So, which is it? Is the stock market really the best assessment of the economy’s overall strength and potential, or is it fully divorced from the real economy that the vast majority of Americans experience day in and day out?
The stock market could hardly be a worse indicator for how the U.S. economy is actually doing. Focusing on the bottom lines of publicly-traded companies and the gross wealth hoarded by those at the top is not just an inaccurate way to measure our economy — a fact that should be obvious at this point — but it’s also a dangerous distraction from the steps the government must take to support the real economy: people.
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To start, it’s helpful to examine who actually benefits from a strong stock market. The wealthiest 10% of Americans own 84% of stocks. Half of American families don’t have a penny invested in the stock market, and that includes 401Ks and other retirement savings. This is even lower among communities of color, with only 36% of Black families and 37% of Latin families owning stock.
Financial markets don’t define success
Regardless of this shareholder breakdown, conservatives will say that high stock profits mean business executives can reinvest their gains into their workers. And yet, the wealth of billionaires in the U.S. increased by $282 billion in just three weeks when the market rallied in April — even as 22 million people filed unemployment claims in that same time.
CEOs waxed poetic about the health and safety of their employees as they laid off thousands of workers, only to turn around and dole out hundreds of millions of dollars in dividends to their shareholders. Plain and simple, stock market increases and corporate bailouts further concentrate power and wealth into the hands of the few, away from workers and families.
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Given that President Trump also stacked his “reopening the economy” council with dozens of Fortune 500 CEOs, it should come as no surprise that he and his allies in the Senate have primarily focused not on keeping people safe and providing relief, but on shielding companies from liability as they bring employees back to unsafe work conditions. The people closest to the Trump administration represent those who stand to gain the most from a booming stock market. It’s no wonder, then, that the president throws his weight behind policies expedient for the market and disastrous for millions of Americans’ health and stability.
The fallacy that financial markets are how to define economic success is exactly what got us where we are today: rampant inequality, a frayed safety net, and a middle-class teetering on the edge of disaster. It’s imperative that we correct decades of the conventional “wisdom” of what the economy needs, or what the economy is. Continuing to prioritize, even rely on, the reign of financial markets will not only not get us out of this — it will leave us far worse off for the future.
Michael Linden, executive director of the Groundwork Collaborative, previously served as managing director of policy and research at the Hub Project, senior policy adviser to Sen. Patty Murray, D-Wash., and managing director for economic policy at the Center for American Progress. Follow him on Twitter: @MichaelSLinden
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This article originally appeared on USA TODAY: Stock market boom doesn’t end COVID unemployment or raise worker pay