Mysteries

I did something I usually don’t do, which is look at one of those articles about rural or suburban voters in the Midwest who voted for Txxxx and will do it again (“Txxxx supporters still support Txxxx!”). Everything he said was about how he’s doing personally. His farm is doing well. The pandemic is mostly far away. He expressed no concern about anybody else and made inane excuses for the president (e.g. it’s so unfair that the news media report all this bad news — they’re purposefully ignoring the good things (?) the president does).

Fortunately, however, the thrust of the article was that Txxxx will do worse in Iowa than four years ago and possibly lose the state.

Along with the mystery of why anyone would vote for such a terrible person and president, there’s the mystery of why the stock market is doing so well. Paul Krugman helps answer that question and warns of darker times ahead:

On Tuesday, the S&P 500 stock index hit a record high. The next day, Apple became the first U.S. company in history to be valued at more than $2 trillion. Dxxxx Txxxx is, of course, touting the stock market as proof that the economy has recovered from the coronavirus; too bad about those 173,000 dead Americans, but as he says, “It is what it is.”

But the economy probably doesn’t feel so great to the millions of workers who still haven’t gotten their jobs back and who have just seen their unemployment benefits slashed. The $600 a week supplemental benefit enacted in March has expired, and Txxxx’s purported replacement is basically a sick joke.

Even before the aid cutoff, the number of parents reporting that they were having trouble giving their children enough to eat was rising rapidly. That number will surely soar in the next few weeks. And we’re also about to see a huge wave of evictions, both because families are no longer getting the money they need to pay rent and because a temporary ban on evictions, like supplemental unemployment benefits, has just expired.

But how can there be such a disconnect between rising stocks and growing misery? Wall Street types, who do love their letter games, are talking about a “K-shaped recovery”: rising stock valuations and individual wealth at the top, falling incomes and deepening pain at the bottom. But that’s a description, not an explanation. What’s going on?

The first thing to note is that the real economy, as opposed to the financial markets, is still in terrible shape. The Federal Reserve Bank of New York’s weekly economic index suggests that the economy, although off its low point a few months ago, is still more deeply depressed than it was at any point during the recession that followed the 2008 financial crisis.

And this time around, job losses are concentrated among lower-paid workers — that is, precisely those Americans without the financial resources to ride out bad times.

What about stocks? The truths is that stock prices have never been closely tied to the state of the economy. As an old economists’ joke has it, the market has predicted nine of the last five recessions.

Stocks do get hit by financial crises, like the disruptions that followed the fall of Lehman Brothers in September 2008 and the brief freeze in credit markets back in March. Otherwise, stock prices are pretty disconnected from things like jobs or even G.D.P. [the Gross Domestic Product] [although the market does quickly, sometimes violently respond to the latest earnings reports].

And these days, the disconnect is even greater than usual.

For the recent rise in the market has been largely driven by a small number of technology giants. And the market values of these companies have very little to do with their current profits, let alone the state of the economy in general. . . .

Take the example of Apple, with its $2 trillion valuation. Apple has a price-earnings ratio — the ratio of its market valuation to its profits — of about 33. [The historical P.E. ratio for the stock market is around 15.] As long as they expect Apple to be profitable years from now, they barely care what will happen to the U.S. economy over the next few quarters.

Furthermore, the profits people expect Apple to make years from now loom especially large because, after all, where else are they going to put their money? Yields on U.S. government bonds, for example, are well below the expected rate of inflation.

And Apple’s valuation is actually less extreme than the valuations of other tech giants, like Amazon or Netflix. . . .

[Prof. Krugman left out another well-known factor helping the stock market (a factor he understands very well). That’s FOMO (fear of missing out). When stocks go up, it’s natural that people want to own stocks. The stock market is, among other things, a giant casino. When some gamblers are having a great time, other gamblers want to join in the fun.]

Unfortunately, ordinary Americans get very little of their income from capital gains, and can’t live on rosy projections about their future prospects. Telling your landlord not to worry about your current inability to pay rent, because you’ll surely have a great job five years from now, will get you nowhere — or, more accurately, will get you kicked out of your apartment and put on the street.

So here’s the current state of America: Unemployment is still extremely high, largely because Txxxx and his allies first refused to take the coronavirus seriously, then pushed for an early reopening in a nation that met none of the conditions for resuming business as usual — and even now refuse to get firmly behind basic protective strategies like widespread mask requirements.

Despite this epic failure, the unemployed were kept afloat for months by federal aid, which helped avert both humanitarian and economic catastrophe. But now the aid has been cut off, with Txxxx and allies as unserious about the looming economic disaster as they were about the looming epidemiological disaster.

So everything suggests that even if the pandemic subsides — which is by no means guaranteed — we’re about to see a huge surge in national misery.

Oh, and stocks are up. . . .