At 25,000 the Dow Jones Industrial average is through the roof. But it is just one economic indicator of many.
And it doesn’t mean what it used to.
Once upon a time, the fortunes of the largest corporations reliably filtered down through the rest of the economy – through hiring, wage and benefit increases, tax payments, increased purchasing, etc. They shared their wealth. What was good for them was good for the rest of us. When the DOW was doing well we were all doing well.
Today, the same class of corporations do whatever they can to keep their good fortunes in their pockets. Stock buybacks; overseas tax shelters; executive compensation packages so large that most of their value will never leave the bank; suppressing wages and benefits for workers; lobbying for regulatory rollbacks on environmental, safety and consumer protections; competition-killing mergers; and in extreme cases (Wells Fargo comes to mind) outright corruption, fraud and theft.
These companies once operated on the assumption that a rising tide raises all boats. Now, they run like it’s a zero-sum game: What puts money in their pocket must take it out of yours. Want proof? If you consider the single landmark legislation of the Trump administration so far – the Tax Cuts and Jobs Act of 2017 – corporate tax cuts are permanent while consumer tax cuts are temporary. That’s a hedge in case the promised economic growth comes up short (as corporate leaders are already predicting): The difference will come out of the pockets of wage earners rather than corporate profits. What’s the incentive for corporations to make sure economic growth reaches the level needed to prevent that from happening? There isn’t any.
Save for the value of 401k’s and IRAs, what’s good for the members of the Dow Jones Industrial Average is now harmful to the rest of us – an increasingly one-way flow of money through the economy, from the bottom to the top.
And when someone says, “But look at your 401(k)”, consider this reality: Most Americans don’t have one. According to one source, as of 2015 only 54 million Americans Americans – about 15 percent of all of us – had a 401(k). For IRA’s it’s about 18 percent. Assuming no overlap (most IRAs are opened by people who are taking control of their 401(k) from a previous employer – so there’s likely to be plenty of overlap) no more than 33% of us have such a retirement savings vehicle.
The average value of those accounts? Around $96,000. The median value – the point at which there are as many accounts that are smaller as there are larger – is a paltry $26,000. See how far that gets you in retirement, even with the exciting growth rates of the past year.
What’s more, leaders in Congress have promised to focus in the 2018 session on cutting Social Security and Medicare benefits. If they succeed, you’ll need even more in retirement savings to offset the benefits those programs provide.
Even if your retirement account is fat enough to promise a comfortable retirement, you can’t use it today to pay access healthcare or send your kids to college or buy a new car or, for that matter, groceries. A fast-growing retirement account is good, but it has almost no impact on the health and welfare of wager earners today.
Once upon a time, good times for the corporate sector put more money in the pockets of most Americans. Today good times for the corporate sector take more money out of our pockets. The retirement account happens to be the one thing they haven’t touched yet – though calls to privatize Social Security would turn that into a reliable generator of corporate profits too.
So make no mistake, the Dow is soaring because the environment for the Corporate 1% has never been better. It’s become a measure not of how well the economy is working but of how easily the corporate sector is feasting on everyone else.
The good gains to your retirement savings are indeed a silver lining – of a very large, dark cloud.