AUDIO: Bull&%#@ Market (Brooke Gladstone)

  When the Dow Jones average plummeted this week, the story led newscasts and newspapers everywhere. But is the stock market really that newsworthy? Dean Baker, longtime watchdog of economics reporting, doesn’t think so.

RUSH COPY

BROOKE GLADSTONE: This is On the Media. I'm Brooke Gladstone.

BOB GARFIELD: And I'm Bob Garfield. On Tuesday a banking crisis spawned a freefall in the Chinese stock market, triggering investor fears that caromed around the world. In the U.S., combined with former Federal Reserve Chairman Alan Greenspan's public comments about a possibly looming recession, the news resulted in a loss of more than 400 points on the Dow Jones Industrial Average, the largest such decline since 9/11.

It was also the top story everywhere. But should it have been? Economist Dean Baker of the American Prospect believes that media preoccupation with the ups and downs of Wall Street not only distracts us from more significant economic issues, but mistakenly assumes a rising market is good for everybody.

DEAN BAKER: There's a tendency to talk about the stock market like it's the home team, so that when the stock market's up we should all be out and celebrating; when it's down, this is bad news, we should all be dour and glum.

Well, actually, for many, perhaps most of us, the stock market isn't the home team. Most people own little or no stocks; 75 percent of the public has less than 25,000 dollars in the stock market. That includes the 401Ks that they may have, if they have them.

So for them, you know, if the stock market's down, it's not necessarily bad news; it could even be good news.

BOB GARFIELD: You're suggesting that when the stock market is up for somebody, that's bad news?

DEAN BAKER: Well, it can be. I mean, the way to think about it is there's sort of three general ways in which you could see the stock rising. One, it could be rising because profits are projected to be higher, and they're projected to be higher because the economy is projected to grow more rapidly. In that case, we could say that is good.

But it may be rising because people anticipate higher profits because wages are going to be lower, or maybe corporate income taxes are going to be lower. That's, again, good if you own a lot of stock, but if you're the person picking up the tax tab 'cause the corporations aren't paying it, you may not be happy.

And, of course, if you're the person working for wages and profits are higher 'cause your wages are lower, you're not going to be happy.

And the third story is, you know, Alan Greenspan's irrational exuberant story of the late nineties where you had a stock bubble. You know, if you're there riding the bubble and you're a shrewd trader and you can get out on top, good for you. But most people aren't in that boat. And so in that sense you could say that was bad news for, you know, really most people, I think, that the stock market got completely out of line with the fundamentals in the economy.

BOB GARFIELD: But the indices do reflect, don't they, what the markets believe the economy is going to do? Should we not pay attention if worldwide traders are flinching at, for example, Alan Greenspan's remarks or the banking scandal in China?

DEAN BAKER: Well, again, you know, there are grounds for concern in the economy. But I would focus on those, rather than the market's reactions, 'cause you know, there's an old line that, you know, the stock market's predicted nine of the last five recessions. I mean, the markets often move in erratic ways for reasons that can't be pinned on any fundamentals.

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