There is something very much broken in the media, particularly with regard to economic reporting. I have already commented more times than I care about the overemphasis on logical fallacies, but the proportionality of the disconnect only grows with share price inflation. Under the headline, Bull Market Shows No Sign of Death With Yellen Support, this Bloomberg article begins,
“The weakest employment recovery in seven decades is proving a boon to equity markets.”
Maybe that is itself a sign of mania, as nothing screams a healthy economy like a decimated labor market. But that is too far of a circulatory understanding, as the thrust of the Bloomberg article was nothing short of discounting the relation between employees that cost businesses money and their alternate role as consumers that, in the end, buy all the products and services. In this formulation, labor is nothing but a cost item on an income statement.
The “logic” here is something far more than tortured, in that the awful labor market conditions will keep Yellen and her comrades in the QE business for longer. Left unsaid is the reality that the FOMC has been in “support” mode for just shy of five full years (with the ZIRP anniversary coming up in a few weeks) without much to show for it. Given the extra dose of QE “tailwinds” just in the past year, the all-important holiday season has gotten off to an “unexpectedly” dreadful start. Via Bloomberg again,
“Purchases at stores and websites fell 2.9 percent to $57.4 billion during the four days beginning with the Nov. 28 Thanksgiving holiday, according to a survey commissioned by the National Retail Federation. While 141 million people shopped, about 2 million more than last year, the average consumer’s spending dropped 3.9 percent to $407.02, the survey showed.”
The blame for the first decline in holiday sales since 2009 has been placed firmly on weak employment and incomes, the very premise that the very same media outlet was so sure was supportive of stock prices. Can it really be both?
There is more than a little chicken and egg being played, at least for economists of the orthodox persuasion. To demonstrate, still another Bloomberg article (all three articles published on the same day) attempted to explain the weakening holiday sales environment,
“’I would have expected Thanksgiving weekend sales to be stronger, given how well financial markets have done,’ Scott Clemons, chief investment strategist at Brown Brothers Harriman Wealth Management.”
Now we are descending past tortured logic into circular nonsense. In the first article, reducing labor costs is supposed to be beneficial to stocks, which is then beneficial, via the third article, to the revenue and sales environment. Except, as we learn via the second article, there is not enough income growth to source such a positive and forward spending background.
The obvious flaw in these assertions above is that stock prices do not represent anything remotely related to the real economy. There is no wealth effect no matter how much orthodoxy counts on it. In fact, it all breaks down precisely where all of this intersects, right at the QE interface.
Karl Marx, in one of his main critiques of capitalism, cites this very problem as a purportedly fatal flaw in the design of the market and capital-based economy. The portion of business profit is, in his formulation, a removal of spending power from labor, and thus businesses will eventually be unable to find enough customer resources to buy all their products at a profit. It seems, given this new and modern framework rested on fallacies, that economists, particularly inside central banks, are desperate to prove Marx correct.
If nothing else, we have a situation where lack of revenue growth, due to labor capturing an insufficient proportion of economic fortune, leads to further emphasis on making sure that labor’s share never rises. While Marx would have (in my opinion) found that unsurprising, he likely would not have associated the dramatic inflation of stock prices with what he saw as the systemic weakness that would eventually destroy the capitalist system.
There really is no mystery here in any of this, as inflation expectations are not a policy tool but detraction from healthy economic growth. Businesses are not hiring and expanding wages because of this policy-driven adherence to their cost structure. Marx was proven wholly incorrect via innovation and risk taking, something now absent because policy suppresses these natural instincts in favor of spreadsheet analysis. Businesses simultaneously over-manage their costs while preferring to eschew traditional risk in favor of financial “investments.”
All these mathematical projections are themselves based on the idea that central bank planners can control the economy via injected monetary instability. That includes stock prices, perfectly adhering to the dissociative system of rationalizations that keep bubbles in what only appears like a steady state of surface tension equalization. How any of this could be associated with market capitalism is the greatest shame of the media and conventional narratives. Marx proposed not a flaw in capitalism, but a corruption (based on his misunderstanding). Central banks embed that corruption.
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