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Global Agenda
Pinchas Landau
Yet another example of Western society's growing obsession with numbers, records, and milestones.
There has been a great deal of artificial media hype in the last few days regarding the Dow Jones Industrial Average, which is nearing its "all-time high" and may therefore achieve a new, "record-breaking" high any day now. Three aspects of this key event in human history - if it happens - are worth noting. First, we have here another example of the obsession with numbers, records and milestones that is a growing feature of Western society. Whether in sports, economics or even popular culture, everything possible is subjected to quantitative measurement and conclusions are immediately drawn from the outcome. Thus the box-office receipts of the latest item of escapist garbage - Spiderman 2, Superman 5 1/2 or whatever - are used as the yardstick to judge a film's relative standing, irrespective of a host of other factors that should be considered when comparing it to its peers. Similarly, the number of appearances of a footballer for his team or national side, the number of home runs or test centuries hit by current baseball or cricket players, the number of grand slam titles - etc. etc., are compared with those of players and teams of one, two or three generations ago, as if the mere fact that the name of the game in question has remained the same makes this comparison valid in any way. Ditto unemployment data, general election results and virtually everything else that is assiduously measured, calculated and sliced and diced by morons trained to use computer programs, but unable to understand the substance of what they are "measuring" - or manipulating, to use the more correct term. In the specific case of the Dow Jones Industrial Average, we also have an extreme example of a statistical artifact that is not merely almost useless, but is actually quite misleading and erroneous in doing its supposed job. The object of this index is to provide a single measure of the state of "the American stock market" or, again more correctly, of the share prices of some of the largest US companies. Smart readers, as well as those with bagrut or equivalent high school education, will note that there is a vast difference between those two definitions - but that is a small part of the problem with the DJIA. This venerable index is a tribute to the staying power of brand names and sheer inertia, which are the main reasons why it is so widely quoted. In and of itself it is flawed in every important respect - its composition, the way it is calculated, what it represents and how it moves. This has been "revealed" in numerous analyses over several decades, and an excellent piece in Wednesday's Financial Times, by the paper's investment editor, John Authers, summarizes the main problems and explains why no one should pay attention to the DJIA, let alone whether it has or hasn't scaled "new all-time highs." Having said all that, it must now be noted that many equity indices, especially in Europe, are flirting with levels that represent the highest in the last several years - which is far more important than "all-time highs." This is a strong indication that these markets - in Germany, France and, to some extent at least, the US - are doing well. But this seems strange, since the US economy is universally expected to slow down over the next year or so, and the share market is widely regarded as a "leading indicator" of the general economy - even the much shallower economic strength in the European economies is expected to fade somewhat next year. Why, then, are the share markets so strong? A possible answer, which jibes well with much else that we know about the US economic boom of the last few years and with what is happening in Europe, is that share prices nowadays have much less connection with what is happening in the economy as a whole. For a start, very few large companies are tied to a single national or even regional economy. Secondly, and critically, the economic growth that is so scrupulously measured and monitored is overwhelmingly skewed in favor of owners of capital (i.e. shareholders), with only a fraction of the benefits feeding through to owners of labor (a.k.a. employees or households). Thus, even when an economy performs poorly - as Europe's have done in recent years - or turns down, as America's is now doing - corporations that are "well-managed" can increase their profits, so their share prices rise. Since corporations tend to copy each other's "good management" practices - for example, by cutting costs (firing staff), increasing efficiency (making remaining employees work harder for the same pay) and improving shareholder value (using the company's money to buy back its own shares, thereby raising the price of the remaining shares - some of which they award themselves), most companies' share prices rise and with them, the indices of these share prices. We are conditioned to regard breaking records as a positive phenomenon, to view the Dow Jones Index as accurate and important, and to equate rising share prices with general well-being. Time for a change?
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