Home > Uncategorized > Workers Should Have Their Fingers Crossed for a Market Downturn

Workers Should Have Their Fingers Crossed for a Market Downturn

February 17, 2018

Who cares if the stock market tanks? No, really. I’m wondering who actually has a stake in the levels of the stock market.

The average person doesn’t have much savings, including retirement savings which is the standard way to have a direct stake in the market. In fact a majority of Americans, and more than that if you consider minorities, have less than $1000 put away for retirement. They might care about the few hundred dollars they have, but it’s really not much directly at stake, and it’s a long term abstract investment if it even exists.

For that matter, truly rich people have investment advisors that diversify their positions by using bonds, hedge funds, and so on to make their bet more market neutral. Plus, they have plenty of assets, so to the extent that the market goes down by a bit won’t overly concern them.

That leaves the well off but not rich people who are adequately long the market to care what it does, and still their stake is mostly via retirement savings. I’m not sure how much they represent as a percentage of the population, but it’s fair to say the average member of the population don’t really care about a market fall.

It’s been a long time since the market has been a good proxy for the economy as a whole. Thinking used to be that if corporations made more money, at least if it came from higher productivity, then some portion of that would be distributed to workers. But it was long ago that productivity decoupled from the median wage.

In fact, it’s become just the opposite: good news for workers means bad news for the market. That became clear recently when a substantial rise in wages led to a drop in the market. The argument went something along the lines of higher wages will cause inflation and then interest rates yadda yadda, but the bottom line is that shareholders have gotten used to keeping all the corporate profits.

Actually, this anti-correlation between the market and worker interests has actually been true for quite a while. The tax bill, which heavily privileges stockholders over wage earners, was slowly baked into the stock market as it became increasingly clear it would pass. In other words, good news for the market has meant bad news for workers for the past year and a half. It’s also why Davos loved Trump: he gave out goodies to rich people with the abstract promise that this will end up in the pockets of workers.

Of course, there are pieces of news that would be bad for both the workers and for the market, like a recession, and there are potential turns of events that would be good for everyone, like exciting new industries that hire lots of people. But for the foreseeable future, I’m thinking that workers should be cheering a tanking market.

Categories: Uncategorized
  1. February 17, 2018 at 3:26 pm

    This isn’t entirely incorrect I suppose but you have to be careful here. Recessions, like you mention, are disastrous for workers and bad for the stock market. There are other things that are bad for both companies and workers like low productivity, inefficiency or lack of investment in good tools and good r&d.

    But it is true that there are things that are bad for the stock market yet very positive overall. These include, like you mention, a tight labor market, but also things like breaking up monopolies, increasing competition between businesses, making companies pay for their externalities, for the damage they cause to our environment, countering regulatory capture etc.

    It’s true that the stock market is often, especially in the short term, a poor proxy for the capacity of the economy to increase welfare.


  2. Guest2
    February 17, 2018 at 10:24 pm

    Yes, you have to be careful here. How would you demonstrate the plausibility of a nexus between “good news” for workers and “bad news” for stock holders?

    “Thinking used to be that if corporations made more money, at least if it came from higher productivity, then some portion of that would be distributed to workers.” This was why Proudhon supported industrialization and predicted a workers utopia. Marx thought not.


  3. February 17, 2018 at 11:56 pm

    Sounds like cutting off your nose to spite your face. Teachers, for example, have their retirement accounts in or pegged to the market. Why would you wish them bad?


  4. Ori
    February 19, 2018 at 1:33 am

    You argue that when the market is doing well, workers are worse off, and when workers are doing well, the market is worse off. How do you conclude that “workers should be cheering a tanking market”? Seems plausible to me that workers are worse off both when the market goes up and when it goes down.


  5. February 19, 2018 at 7:02 am

    Agreed, the market (and particularly the DJ Ave.) is not a good representation of the economy…
    Moreover, the last few years many people/institutions (expecting a market crash) have bought products/derivatives that short the market (to make money when the downturn comes). I think powers-that-be are pushing the market up artificially to force those people out; once they have mostly capitulated THEN the market will crash (or, in truth, just return to fair value) — but the ripples (both psychological and economic) such a crash causes indeed affects most everyone.


  6. Michael Z
    February 19, 2018 at 10:06 am

    Most stock market declines are part of an overall deterioration in the economy, which tend to harm the more vulnerable people. The most recent downtown was due to fear of higher inflation and interest rates due to a tightening job market, but if there were a long-term serious decline in the stock market you can be sure the workers for these companies would be adversely affected. Companies will start laying off workers, cancelling expansion plans, and so on. The wealthy shareholders would become less wealthy but they aren’t the ones with less than 1000 dollars in savings who would suffer if they got laid off.


  7. March 2, 2018 at 11:26 pm

    There are people who do better when the market is up. A lot of retirees I know have annuities where the annual payout is based on the market value of their holdings, so when the market is up, they get more money to spend. I get money from my investments, so I like it when the market goes up, and I know people in venture capital, so they like it when the market goes up. There are also people who can run a mile in less than four minutes, but there aren’t a whole lot of them.

    One thing to note is that the market has been decoupled from the economy since the late 1980s. It often goes up during a recession since during recessions there is a lack of investment opportunities. This is because wages haven’t kept up with productivity, so there is a general lack of demand. While broad based consumer demand has been weak, there has been a demand for the kinds of things rich people buy: shares of corporations, government debt and high priced real estate. Anyone who says there is no inflation hasn’t been paying attention.

    One of the failures of the more recent recessions has been that they haven’t affected the wealthy the way the Great Depression did. It has been too easy to ride out the downturn. That means there was no push for reform among the ruling elite. FDR and his clique, if you remember, were quite wealthy. If the markets collapse after the next recession, there might be real change, but it will have to be a serious collapse. The elites only respond to existential threats. The elites have been feeding on the carcass long enough. It’s time for them to start building things instead.


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