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US ECONOMY
STOCK MARKET VALUATION
Is the present stock market valuation real, or a dangerous bubble?
Peter Burgess COMMENTARY
I have no ideas when or where I got this graphic but seeing it today (November 2022) reminded me of the key role that 'financialization' has played in decision making during the past 40+ years.
The idea that 'intangibles' were just 9% of the stock market value in 1980 and this had increased to 65% by 2015 should have raised all sorts of warning flags. Worse, the situation has become a ;pt worse in the few years since 2015.
I trained to become a Chartered Accountant in the UK in the early 1960s. Previously I had studied at Cambridge University and learned something about engineering and economics. These three subject areas gave me a fairly good foundation for my subsequent lifetime of experiential learning.
By the late 1990s I was pretty much convinced that the management metrics being used for national economic management and for corporate performance optimization were sending all the wrong messages. Once in a while some of the high proflie people in these fields would say something to alert people to this issue, but generally speaking ot was completely ignored.
During my career I have often been guided by asking the question 'What would Keynes do now?'. Many years ago I learned that Keynes and those around him like Joan Robinson and later Nicholas Kaldor wanted useful answers for real problems of the current time. They rejected the more usual practice of trying to force fit an economic policy answer to the present situation no matter what actually needed to be done. Frankly, Simply put, I am appalled at much of the dialog that is going on at the present time by many of those with high profile and a big megaphone.
There was a time when 'left' and 'right' had meaning in American politics, but my observation during the past few election cycles has been that a more important way to look at politics is in terms of 'top' versus 'bottom' of the economic pyramid with the 'top' driving the agenda and the 'bottom' essentially out of luck. It is really sad that politics is much more driven by money than it is driven by a more meaningful process of analysis. Having said this ... I am gratified that there was no 'red wave' in this last election cycle, and young people right now seem to be more engaged than ever before. Maybe this is the silver lining to the present time ... not to mention the rather impressive body of legislation that President Biden has managed to enact in spite of only a razor thin majority in congess.
Meanwhile, there is still a disconcerting disconnect between stock markets at record highs, unemployment at record lows and the Biden administration being blamed for high gas prices and inflation ... convenient for a GOP that is out of power and more seriously completely out of useful policy proposals!
This graphic shows the results of the financialization that I referenced in my opening above. It is worrying because there is a big element of 'bubble' in this stock market that will eventually do damage to the real world that the bottom of the economic pyramid inhabits.
Peter Burgess
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