The NYT noted the fact that Dow briefly hit a level that was 20 percent below its previous peak on Friday, meeting the definition of a bear market. There is no reason for most people to really care about this milestone, both because the Dow is not a representative index and the vast majority of people own little or no stock. (And we would want to look at inflation adjusted numbers in any case.) Movements in the stock market bear only a loose relationship to the overall health of the economy and in fact can go in the opposite direction for substantial periods of time. This is easily demonstrated by the bear market that ran from 1965 to 1982. While the NYT tells us that periods of bear markets "coincided with geopolitical or economic turbulence — wars, the Depression, stagflation," the first 8 years of this bear market were actually the most prosperous period in the country's history. From 1965 to 1973 the unemployment rate averaged 4.5 percent, GDP growth averaged 3.9 percent annually, and the real average hourly wage grew at a 1.7 percent annual rate. In fact, real wages for a typical worker grew more during the first 8 years of this bear market than in the subsequent 35 years. The economy clearly faces very serious problems in the years ahead due to the collapse of the housing bubble, the correction from an over-valued dollar, and the adjustment to higher oil prices. It is likely that these developments will also have a negative impact on the stock market, but the market itself is a very poor measure of the state of the economy. The NYT and the rest of the media would better serve the public if they focused on actual measures of the health of the economy.
--Dean Baker
