At one time today, the Dow Jones Industrial Average had dropped 1000 points. Then it rallied and finished the day down 300-plus. Several factors were listed by the evening pundits: the situation in Greece, a couple of glitches (including a trader’s entering an order for a billion dollars when he meant a million!), and general market nervousness. The three Gs, we'll call them: Greece, Glitches, and Gloom.
First, Greece: The TV screens were filled all day with scenes of phalanxes of Athens policemen facing off against mobs, made up mostly of public-sector union members. When a government is threatened with bankruptcy (as Greece surely is) and must resort to an austerity program, public-sector employees are high on the cut list, because their unions have demanded and won outsized pay and benefit packages over the years.
In this country it is no different, and when the federal government and the states bite the bullet and declare their own austerity programs, the public-sector employees will take to the streets. (The private sector, presumably, will be at work.) The new governor of New Jersey, squeezed by his State’s miserable finances, spells out the stakes: A 49-year-old public-sector retiree in New Jersey will get $3.8 million in pension and health benefits despite having paid only $124,000 for them. “Is that fair?” he asks. The unions no doubt would answer with a resounding “Yes!”
General Motors illustrates where such largesse leads you, but if you don’t sell cars, you don’t have a job, whereas you will always need teachers, policemen, firemen, and social workers. Only maybe not so many of them, as Greece will now find out.
Glitches: Computers are a wonderful thing, but is the power to buy or sell a million shares at a click of a mouse a good thing? Trading regulations have not caught up to technology, and until it does, we need circuit breakers. Remember them? It used to be that whenever the Dow fell by 250 points, all trading was stopped for some period of time (10 minutes, I think). We are in an era where speed is all. Today's Times has a long article bemoaning the fact that a Red Sox – Yankees game averages about 3-1/2 hours. So what? The game starts at 7, and 10:30 is hardly an ungodly hour to head home, especially if the game is exciting, as most Sox – Yanks games are. Similarly, would the world end if it took 10 seconds to trade a stock, rather than a microsecond?
Gloom: It is true that most stock-market traders are worried. They are worried about their jobs, about the chance of terrorist attacks, about the national debt. But underlying everything they are mindful that their government is not on their side. The President rails against “fat-cat” bankers, dishonest insurance companies, and Wall Street bonuses. Watching Congress questioning the CEOs of Goldman Sachs, Bank of America, etc. is like watching the lions devouring Christians. The starting assumption in most public debate these days is this: The people managing your money are a bunch of crooks, and we’re going to get them, by gum.
If you have money to invest and believe this, you will not invest it in the stock market. You will put it under your mattress.
Life is still comfortable for most people in the United States because of the flywheel effect. For decades – from the Second World War to about 1990 – we had the most productive, enterprising, dynamic economic engine in human history. That engine is still spinning, but it is slowing down, like a flywheel deprived of its power. Unless we quickly resuscitate the risk-taking spirit and start cheering for those who create wealth instead of beating them up, the flywheel will stop, and Washington will resemble Athens.
