The real economy vs. the stock market

The buzz about the release of the Hollywood film version of “The Girl with the Dragon Tattoo” on Dec. 21, plus the lingering Occupy Wall Street movement, reminded me of my
favorite passage in the novel by the late Swedish author Stieg Larsson.

One of the main characters, investigative reporter Mikael Blomkvist, is interviewed by the host of a TV show after breaking a story about a corrupt business empire. The news of the crime had shaken the Stockholm Stock Exchange, which, Larsson writes, “found itself in freefall and a handful of financial yuppies were threatening to throw themselves out of windows.”

Blomkvist is asked what responsibility his magazine bears for the financial crash.

“The idea that Sweden’s economy is headed for a crash is nonsense,” Blomkvist replies in the book.

“We’re experiencing the largest single drop in the history of the Swedish stock exchange – and you think that’s nonsense?” the TV host asks.

“You have to distinguish between two things – the Swedish economy and the Swedish stock market,” Blomkvist answers. “The Swedish economy is the sum of all the goods and services that are produced in this country every day. There are telephones from Ericsson, cars from Volvo, chickens from Scan, and shipments from Kiruna to Skovde. That’s the Swedish economy, and it’s just as strong or weak today as it was a week ago.”

He continues: “The Stock Exchange is something very different. There is no economy and no production of goods and services. There are only fantasies in which people one hour to the next decide that this or that company is worth so many billions, more or less. It doesn’t have a thing to do with reality or with the Swedish economy.”

The TV host asks Blomkvist if he’s saying that it doesn’t matter that the stock market is
plunging.

“No, it doesn’t matter at all,” the magazine editor says in the novel. “It only means that a
bunch of heavy speculators are now moving their shareholdings from Swedish companies to German ones. So it’s the financial gnomes that some tough reporter should identify and expose as traitors. They’re the ones who are systematically and perhaps deliberately damaging the Swedish economy in order to satisfy the profit interests of their clients.”

The TV host again asks Blomkvist if he doesn’t think the media bears some responsibility for the financial crisis.

“Oh yes, the media do have an enormous responsibility,” he replies. For at least 20 years financial reporters had failed to scrutinize the suspect enterprise and its leader.

“On the contrary, they have actually helped to build up his prestige by publishing brainless, idolatrous portraits. If they had been doing their work properly, we would not find ourselves in this situation today.”

The passage made me think of Jack Welch, the chairman and CEO of General Electric from 1981 to 2001.

While Welch wasn’t involved in any illegal activity that I know of, his loyalty to America certainly is suspect. And he, too, was aided by a fawning business press that bought
every line of his self-serving baloney.

Also known as “Neutron Jack,” Welsh would fire 10 percent of GE managers each year – the ones some corporate brain trust decided were the lowest-performing. I have my doubts
about whether they really were. There’s a lot of politics in most workplaces, too.

In his book “Jack: Straight From the Gut,” Welch bragged about eliminating 112,000 GE employees between 1980 and 1985. Some 81,000 were laid off and the rest went with the businesses that GE sold.

Wall Street cheered every time an American corporation reduced its workforce or sent jobs overseas, or south of the border, during those go-go days.

It was always a wise decision for the company to have shed expenses and improved earnings for the shareholders. What it meant for the workers and America wasn’t mentioned.

Former U.S. senator Byron Dorgan of North Dakota chronicled the era (which continues to this day) in his excellent 2006 book “Take This Job and Ship It: How Corporate Greed and Brain-Dead Politics Are Selling Out America.”

Welch’s management practices were copied thousands of time over, and millions of
American jobs were shipped aboard or eliminated.

Thousands of products once proudly made in America – Huffy bicycles, Radio Flyer wagons, Ralph Lauren shirts and trousers – are now produced overseas.

Dorgan tells the story of fired Huffy workers in Celina, Ohio, whose last task was to take the American flag off bicycles and replace it with a decal of the globe.

Other countries have trade policies to protect workers. Ours protect wealth.

It’s come back to harm the real economy in the United States. Unemployed people don’t have much buying power, and require more government assistance.

And how are things going in Wisconsin, where Gov. Scott Walker promised that eliminating bargaining rights for public workers and cutting government spending would lead to an economic revival?

Not so hot.

The state led the nation in job losses in October, according to a story in The Capital Times online newspaper. Quoting U.S. Bureau of Labor statistics, the newspaper said
Wisconsin had 9,700 fewer jobs in October than it did in September.

Last month, the governor’s own administration predicted that the state would fall short of his campaign promise to add 250,000 private-sector jobs by the end of his four-year
term.

As of September, the state had added just 29,300 since Walker took over as governor at the start of 2011. The number is now down to 19,600.

4 thoughts on “The real economy vs. the stock market

  1. Chris, FYI here are the facts about job and income numbers in Wisconsin relative to those for other states and the United States as a whole:

    The average job growth percentage for the United States in 2011 through October was +1.1%; but at the end of October 2011, Wisconsin ranked forty-third (43rd) from the top in percentage of job growth for the year, at +0.41%; and the only states with lower percentages of job growth than Wisconsin in 2011 were South Dakota, North Carolina, Arkansas, Rhode Island, Delaware, Indiana, and Georgia (“Job Growth by State for 2011: How is Your State Doings?” 11/26/11, at http://mollysmiddleamerica.blogspot.com/2011/11/job-growth-by-state-for-2011-how-is.html).

    While the United States as a whole has gained approximately 1.1% in jobs since October 2010, Wisconsin has been one of the states with the lowest job growth, or in some months actual job losses, during this time period–as measured either month over month, over the past three months, 2011 to date, or over the past year. From September to October 2011, Wisconsin lost more jobs in absolute numbers (-9,700) than any other state; from September to October 2011, Wisconsin lost a greater percent of jobs (-0.35%) than any other state; over the last three months from July to October 2011, Wisconsin lost the second greatest number of jobs (-21,000 in WI, compared to -22,400 in NY) among all states; over the last three months from July to October 2011, Wisconsin lost the third greatest percent of jobs (-0.77% in WI, compared to -0.92% in WY and -1.69% in RI) among all states; and Wisconsin ranked 43rd among the 50 states for percent of job growth from October 2010 to October 2011 (+0.22%) (“Which States Were Job Winners or Losers in October 2011″, 11/25/11, at http://mollysmiddleamerica.blogspot.com/2011/11/which-states-were-job-winners-losers.html).

    Wisconsin had an overall 9.9% poverty rate in 2010, compared to a national rate of 15.1%, according to U.S. Census Bureau data; in 2010, the U.S. definition of poverty is an annual income of $22,314 for a family of four, and $11,139 for a single person. However, the median household income in Wisconsin has fallen significantly, dropping to $51,303 in 2009-10, which is down $3,608 from 2006-07; and the 2009-10 median household income in Wisconsin is down $7,119 from 1999-2000, when figures are adjusted for inflation. (See, “Biz Beat”, 9/13/11, at http://host.madison.com/ct/business/biz_beat/biz-beat-wisconsin-poverty-rate-th-lowest-in-u-s/article_9bd74da4-de4d-11e0-bde9-001cc4c03286.html).

  2. Sorry to let you down Chris but we have only one president in this country and his name is Barack Obama. We also have one governor in our state and his name is Scott Walker. I view one trying to work for the common person and the other one trying work for the elite. It would be nice that these two people of differing political party affiliations along with all the other elected officials in this country work for us as in U.S., to right all the wrongs that both political parties of this country have wrought upon this country on shortsighted legislation.

  3. Good post. Personally, I have been analyzing natural gas stokcs for a while now and I see tons of growth potential throughout the next decade or so. Natural gas is about 10x cheaper than right now, however experts are saying that by the year 2016 we will start to see a huge spike in the price of natural gas in response to higher demand. Ive also been following much smaller companies too like Alon U.S. Energy Partners, whose stock rose 56% over two weeks, recently.

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