Don't look now, but after a year and a half in the doldrums, the stock market, new symbol of our national existence, is trending upward again, and Americans are once more getting that old gleam in their eyes. Could it be that the good times are returning? Could it be that we'll all be rich after all? Could it be that irrational exuberance revisited is just around the corner?
Judging by his recent public pronouncements, Papa Greenspan thinks so, or at least he wants us to think he thinks so --a technique called "talking up the market." Those cockeyed optimists at CNBC, the investment network, think so, too, but then again, they're paid to think so; their job is to keep business chat-show ratings up, and failing stocks mean sinking ratings. George W. Bush's economic advisors think so, as well, but in their case, the wish is father to the thought; Republican chances in November are riding on a business turnaround.
There's a fundamental misunderstanding at work here, which is the now-widespread belief that the stock market is the true gauge of the health of the American economy; it's not. The fact that it's not (or shouldn't be) was established in law a quarter-century ago by a largely forgotten piece of legislation called the Full Employment and Balanced Growth (or Humphrey-Hawkins) Act of 1978. The last liberal legacy of Minnesota Sen. Hubert Humphrey, Humphrey-Hawkins set forth the principle that full employment and price stability were also measures of a healthy economy and should be pursued by the federal government. Workers, in other words, had a claim on Washington's consideration equal to that of investors.
Originally intended to make the elimination of unemployment a mandatory task of government, Humphrey-Hawkins emerged in final form as a toothless tiger, a set of idealistic goals and laudable objectives unaccompanied by any enforceable means to those ends. It does remain a forthright statement of principle that can't be totally ignored, however, in the latter-day pursuit of the theory that the market alone matters. It also makes one concrete demand of Washington policymakers: It forces the lordly chairman of the Federal Reserve Board to leave his temple on high and appear twice yearly before Congress to explain his monetary actions and how they affect the broader economy.
Under Chairman Greenspan, that requirement has taken the form of warm-and-fuzzy appearances by the Fed chief before worshipful, befuddled, and apologetic congressmen, who lob softball questions in the great man's direction. It need not be so, nor should it, but there are presently precious few Wright Patmans or Henry Gonzalezes in either congressional chamber willing to fight for a democratic economy and make the tough inquiries. On Greenspan's watch, therefore, the idea that the stock market is the be-all and end-all --the chairman, remember, is a conservative Republican, first, last, and always --has for the time being been regrettably established.
Part and parcel of this market-uber-alles mindset is the proposition that, unlike years past, when ambitious businesses used retained earnings or loans from commercial banks to fund their expansions, businesses of today should look to the stock market for painless, interest-free capital formation. This can be accomplished by simply "going public," issuing new securities, and acquiring more stockholders whose stock purchases flow into company coffers. The only sticking point is that the amount of capital coming in depends on how high the market (including the company's stock) rises. In short, the market must be continually ratcheted up to provide cheap capital for profit-hungry corporations seeking to expand internally, or (more typically) by acquiring other firms.
The question is whether it is truly ethical to invest in amoral corporations whose goal is simply to expand --not, for the most part, by building the economy and creating new jobs, but by using excess capital to make constant acquisitions and move steadily toward monopoly status. That's been the pattern of the last decade. The value of worldwide mergers, most of them involving American firms, quadrupled in the 1990s, passing $1.6 trillion in 1998, and it's still rising. Conversely, market-financed merger mania has brought about no corresponding increase in well-compensated employment; instead, we've seen nothing more productive than an economic reshuffling, as ownerships of existing companies change hands like figures moving back and forth on a chessboard.
Nevertheless, the morality of investing in the stock market could be easily rationalized if the market was merely a questionable capital formation device. It's much more insidious than that, however. In almost every instance, a rising stock market rises at the expense of something else: working people, the environment, the fundamental health of the real economy.
To take the most obvious example, reduced labor costs achieved through job cuts cause the stock market to rise by enhancing business profitability. This became abundantly clear in the great corporate downsizing of the 1990s, when American companies shed workers at a record pace to become "more competitive" --and, incidentally, to give their stocks a boost. Workforce reductions were achieved in a number of ways: computerization and automation, which substituted technology for human beings, and mergers and acquisitions, which (besides reducing economic competition) allowed for the elimination of duplicate personnel positions. And, wherever these things took place, the stock values of the companies concerned invariably rose.
Labor costs were also reduced by the process of economic globalization. International commercial treaties, such as the North American Free Trade Agreement (NAFTA), permitted US companies to move offshore, taking their unionized blue-collar jobs with them. Innumerable American-based multinationals established operations in low-wage Third World countries, reducing their labor costs to a fraction of what they had been. American workers lost employment, and foreign workers were exploited shamelessly, but the stock values of the multinationals soared.
The movement to overseas venues benefited the stock market in another way: It freed American companies from the costs associated with domestic environmental regulation. It's obviously less costly and more profitable to pollute than not to pollute, and Third World countries, desperate for economic development, are willing to pay the price of ecological degradation in order to lure multinational corporations. Overdevelopment of pristine areas, the destruction of land and water resources, and a diminishment of worldwide air quality are all side effects of the activities of US multinationals abroad, but once again, Wall Street loves the favorable impact on corporate bottom lines.
The list could go on ad infinitum. Anything that contributes to corporate profitability, regardless of the cost --tax havens abroad, economic deregulation at home, successful union busting, reduced wages, higher consumer prices --makes corporate stocks attractive and raises their value. And the inescapable fact is that anyone investing in the stock market is, like it or not, indirectly endorsing such tactics. So, if you consider yourself a progressive populist, you might want to think twice before plunging into Wall Street's fetid waters. You may lose a little money when (and if) the market recovers its momentum, but you'll sleep better at night.
Wayne O'Leary is a writer in Orono, Maine.