Misleading Leading Indicators

The conventional wisdom of free marketism is that the stock market is a “leading indicator” and employment is a “lagging indicator”. The message you are supposed to read from this is that, even though more and more people are being thrown out of work every day, when the stock market starts going up you should believe that happy days are just around the corner and that it’s time to get back into the game again by investing and spending whatever wealth you  still have or might have someday, or your children might have in the future.

Maybe you should step back for a moment and consider what stock the market numbers really mean and compare that meaning with with meaning of employment numbers.

Leading Indicators top center

• As even the free market crowd admit, the stock market is driven by traders seeking to produce nothing more than profits. The creation of real wealth is irrelevant to the players. It is the psychology of the market that drives the CONFIDENCE (i.e. con) GAME. If major players can lead you to believe that the stock market is in fact, a reliable predictor of the future of the economy, you will put money into the game. As the amount of money on the table increases, the price of stocks go up. If you catch the rise (the bubble) you might realize a bit on the return. The big players will, of course, realize a big return on profit taking, transaction fees, and eventually on renewed lending.¹

• The lagging indicator of employment has nothing to do with psychology. Employment numbers do not reflect what people THINK might happen, they reflect what IS ACTUALLY HAPPENING. Employers don’t hire people because they think they might need more people to produce real product and service. They hire people when they actually have real work producing real value that needs doing.²

Imagine this . . .

There’s this gambling casino owned by a cartel of very wealthy financial wheelers and dealers. About a year ago the owners were on a binge. So many people were playing that they figured there was no limit to the amount of money people would wager. They pulled out the stops and reinvested their money in more gaming tables, betting that the number and size of people’s wagers would continue upward forever. Then one day the players at the table just ran out of money and credit and walked away. The casino owners were left holding the bag.

Being no dummies, the incredibly wealthy casino owners took the huge amounts of money they had accumulated and buried under their mattresses. Their money stopped flowing to the borrowers who gambled at their tables, and the “free-market” economy came to a grinding halt. Scared stiff, the government stepped in and gave the casino owners a big infusion of taxpayer dollars to protect them against future losses and to “stimulate” them to open the tables again.

Now flush with taxpayer cash, the casino owners have reopened for business. Their first task is to LEAD the players out there to believe that the game is on again and everyone can be a winner! One way to do this is to manipulate the odds a bit to get the suckers in the door. Once in the door, they get the media pundits (i.e. shills) to start ringing the slot machine pay-off bells: “Hooray, everybody is winning!”

The stock market is not a “leading indicator” because it predicts a recovering economy in which the production of honestly valuable products and service is on the rise. It is a “leading indicator” because it leads people back to the gambling table of conspicuous consumption, blind speculation, and leveraged risk.

Here’s the big secret. It’s a  ”CON”fidence game. Bubble, bubble, toil and trouble. Why is it so hard for people to understand this?³

PS – As the confidence game suckers rush back to the gambling tables the real investments that would secure or national security and our children’s futures  —- healthcare, education, production of value, and wealth that benefits all — are deferred… again.⁴

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