The ABCs of Wall Street shows we’ve been schooled

Bill Knight column for Thurs., Fri., or Sat., April 5, 6 or 7, 2018

People appreciate measurements. There’s something comforting and concrete about numbers, whether it’s rain gauges, batting averages, or the Bulletin of Atomic Scientists’ “Doomsday Clock.” But we’ve become flooded with acronyms: WWJD and BTW, FOMO and ICYMI, and other BS.

Speaking of BS, consider Wall Street. NASDAQ sounds like AFLAC’s foreign cousin, right? S&P might refer to some frisky game involving Sadism & Profits. And the ever-present DJIA (Dow Jones Industrial Average), on the news almost constantly? No longer the key indicator of stocks, it’s still vaguely familiar as the supposed symbol of the stock market and economy

However, whether owning individual shares of corporations, a mutual fund, or Individual Retirement Account (IRA) or self-directed 401(k)s, most Americans are mere spectators of Wall Street, more even than Washington – powerless witnesses to capital and the Capitol.

This is important because government and the news media traditionally consider the stock market a benchmark of the nation’s economic performance. But that success is increasingly less meaningful to regular people. Also, a disparity of true involvement in Wall Street magnifies the retirement situation by revealing the existence or health of pensions or other retirement accounts with stock holdings.

Literally, we have little stake in the stock market.

“Despite the fact that 46 percent of households owned stock shares either directly or indirectly through trusts, mutual funds or pension accounts, the richest 10 percent of households accounted for 81 percent of the total value of these stocks, though less than its 91 percent share of directly owned stocks and mutual funds,” New York University economist Edward Wolff wrote in his 2017 paper “Household Wealth Trends in the United States.”

“Housing, liquid assets and pension assets accounted for 87 percent of the total assets of the middle class,” he added. “The remainder was about evenly split among non-home real estate, business equity, and various financial securities and corporate stock. Stocks directly or indirectly owned amounted to only 10 percent of their total assets.”

Besides Wolff, others – including author and former Labor Secretary Robert Reich, and the Gallup organization – say that the top 20 percent of Americans, as defined by total wealth, owns 92 percent of stock (so 80 percent of us share the other 8 percent!)

Breaking it down more, the top 10 percent (whose holdings average $969,000, National Public Radio reported) owns 84 percent of all stocks. The Rest of Us have holdings worth less than $5,000, the New York Times reported.

The Top 1 percent? Alone, they own almost 40 percent.

This all means that the stock market benefits, even indirectly, less than half of Americans, and significant stock-market gains overwhelmingly enrich the wealthiest Americans.

Of the 10 percent of families with the highest income, 92 percent owned stock as of 2013, just above where it had been in 2007. But ownership slipped for people in the bottom half of the income distribution, according to the Federal Reserve Bulletin 10 #4: “Direct and Indirect Holdings of Publicly Traded Stock.”

And the decline in stock ownership in the last decade – about two-thirds of families at least indirectly owned stocks 10 years ago, NPR says – has been more pronounced among middle- and lower-class people. Somewhat cruelly, the value of direct and indirect holdings of corporate equities increased since 2010 although the ownership rate fell.

“Ownership of savings bonds, other bonds, directly held stocks, and pooled investment funds sustained sizable drops in ownership rates between 2010 and 2013, although none of the four types of assets are commonly held, with ownership rates in 2013 varying between 1.4 percent (other bonds) and 13.8 percent (directly held stocks), the Fed reported.

Of course, the rich own more of everything, from land to jewels; the middle class has most of its wealth in homes, as Wolff showed. But why is it acceptable that a sliver of the elite overwhelmingly dominates Wall Street – and therefore Washington?

It’s time to consider other measurements of the economy that go beyond the share prices of publicly traded corporations, an alternative such as the Genuine Progress Indicator (the GPI – a “friendlier” acronym).

Unlike the Dow or the GDP (Gross Domestic Product), the GPI composite seeks to measure economic growth of the country and human well-being by including financial and economic factors PLUS other figures: the poverty rate; the value of volunteerism; the costs of crime, climate change, family breakdown and deterioration of natural resources; water, air and noise pollution; the loss of farmland and wetlands; and the value of parenting and housework, education and infrastructure.

Noticing the ups and downs of the more comprehensive GPI could lead to more awareness, which could lead to policy changes that serve more of the people.

OK?

LOL!