February 26, 2009
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"The Stock Market Is Not A Good Metric Here"
So says Joseph Stiglitz on CNN: “The stock market is not a good metric here… If we give money to the banks, the stocks will go up. That’s not what we’re concerned about.”
As Peter Dreier at TPM Cafe says, “the reliance by TV and radio newscasters, newspaper reporters and columnists, and quick-with-a-conclusion pundits on the stock market to assess the merits of a policy prescription, or even the health of the economy, is incredibly misleading.”
Now, normally, what’s good for the economy is good for Wall Street. Shareholders place bets on the economic future of their companies. If companies look like they’ll do well, the stock goes up. On aggregate, a rising stock market suggests that a lot of companies will do well, and ditto the overall economy.
But it’s an index, not a picture. Let’s take a situation where what’s good for the economic health of the nation involves, or even MAY involve, forcing shareholders to take losses. Now shareholders’ interests are in conflict with good economic policy. In fact, in this case, the BETTER the policy is, the worse shareholders are likely to view it.
The banks, in this case, are like Allen Iverson. Normally, you want this guy on your team — if he plays really well, your team plays well. Now let’s say he’s got a gimpy knee, but he can still shoot. Let’s say you’ve got a lame fantasy draft that only ranks players by points scored. If you’ve got Allen Iverson in your fantasy draft, you want him to play, and you want him to chuck up as many baskets as possible to get his PPG high, at least until they can swap him off to somebody else before he REALLY gets hurt.
But if you’re coaching the team, you want to sit him down on the bench or put him into rehab until he’s ready to play again. Nobody would say that the fantasy draft players in this case have the team’s — or the game’s — interest at heart,
I can’t tell you how many times I used to turn on the news to see that Iverson scored forty, but the Sixers lost. Who cares? I just want the game to be good again.