THE Dow Jones Industrial Average has surged more than 11 percent in the past week. This might be just an upward blip in a continuing downward trend. Or maybe the correction is over, with the market finding a new baseline level around 25 percent below its insanely overvalued peak near 12,000. Or it might mean something else entirely.
But I think it’s safe to say that the surge suggests the market has again achieved a certain state of normality. The plunge hit in early July – and in its wake, with stock prices at lows unseen since the mid ’90s, buyers are lining up.
That’s normal human behavior. What hasn’t been all that normal is the relation between the market and the overall economy. You may not know this, because you’ve been hearing only about the crooks in the executive suites, but in the first quarter of 2002, the economy grew at a rate near 6 percent.
That would be terrific news under any circumstances, let alone at a time of wild uncertainty over the war on terrorism. The second-quarter figures come out tomorrow, and analysts expect a growth rate considerably lower but still very healthy, around 3 percent.
When President Bush and Treasury Secretary Paul O’Neill say the economy is strong, they’re not spinning. They’re speaking the truth. These are not the circumstances under which you expect to see the market tank.
Is it a bad thing that confidence in the stock market has been shaken in the past few months? No. Investors aren’t supposed to have the same confidence in their stock investments that they have in their bank deposits.
Buying stock isn’t about finding a product that serves our daily needs; it’s a form of betting. And when you bet, you’re supposed to stay on your toes about the value and circumstances of your bets.
If people became convinced that their stock portfolios would only increase in value every year, then people were stupid. And like gamblers who don’t pick up their chips and leave the table when they’re on a hot streak, they deserve to suffer the consequences of their foolishness.
Most amusingly wrongheaded is the commentary by those who’ve decided that the news of the past six months all but invalidates free-market capitalism. In his magazine, the American Prospect, economist Robert Kuttner writes that the lesson is nothing less than this: “Laissez faire itself is the ultimate corporate fraud.”
In other words, even people and corporations who didn’t do anything crooked have committed fraud simply by participating in the stock market’s growth.
Kuttner says, “It’s likely that American capitalism is facing its most dire crisis since the 1930s. The parallels are eerie.”
Yes, consider the parallels:
* In the ’30s, the U.S. unemployment rate averaged around 20 percent. In 2002, the rate is . . . 6 percent. Eerie, isn’t it?
* In the ’30s, the U.S. economy shrank by one-third. In 2002, the U.S. economy grew by nearly 6 percent in the first quarter! Ooooh, that’s eerie!
* In the ’30s, the Dow was somewhere around 300. As of this morning, it’s at 8,500. It’s almost like looking in a mirror, it’s so damn eerie!
The Democratic Party has been flirting with such logic for two months now, in part because Kuttner’s words reflect a substantial body of opinion that was stilled in the Clinton years.
None of the party’s leaders has indulged in Kuttner’s anti-capitalist rhetoric. But Kuttnerism gives the Republican Party the only real opening it’s had to go on the offensive. With legislation just passed to toughen penalties against corporate crooks, the GOP can now begin asking Democratic leaders just what they do believe about the free market.
Capitalism triumphed over communism, and the Democratic Party ran to embrace the free market in a way it never had before. What do the Democrats have to say now about capitalism and the free market? Will they sound more like Adam Smith – or Bob Kuttner?