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Posted: January 28, 2025
In the junk economics media under capitalism, the stock market is the dominant point of nearly all economic discussion and analysis. Every economic event or decision gets reduced to its effects on the stock market. If stock prices rise, that’s ‘good for the economy,’ no matter the reason for the rise. The same applies in reverse. Stock prices dropping is always considered ‘bad for the economy.’
However, recent years have seen enormous stock market gains in tandem with increasing homelessness, cost of living crises, and worse working conditions. Additionally, frequent stock bubbles, and their inevitable crashes, do lasting damage to workers, our jobs, and our families. So why does junk economics give the stock market so much limelight? Because capitalist interests overlap almost perfectly with stock market performance. Meanwhile, working class interests are daily more disconnected from stock market developments, or even actively harmed by ‘strong’ markets. Therefore, the capitalist media forefront the stock market, ignoring discussions about reducing economic inequality and improving workers’ quality of life.
At core, a stock market is where companies can raise money from investors. The price of a stock is based, in theory, on the benefits/dividends that a buyer can expect as a partial owner of the company’s future success. Companies are supposed to compete for investment, with the most effective companies surviving in the market. In a vacuum, a stock market can be a productive way for people with excess money to invest in other people’s ideas, to grow the entire economy for collective benefit. However, the concrete and historical development of global stock markets, particularly in financial capitals like New York (Wall Street) and the City of London, leaves modern stock markets far from this ideal in two key areas: 1) the social productivity of investment, and 2) equality in stock ownership.
A key junk economics’ assumption about stock markets is that all money invested is invested productively. This implies news jobs, creating new goods, services, or technologies. Again, good in theory, but modern stock markets struggle to produce new jobs, or even increase productivity, especially in socially productive ways. Investment is an important component of production, but far from the only one. Raw materials, skilled workers, industrial machinery, all aimed at solving a problem with social value, are each, and collectively, more important. Without these materials and a workforce in place, any investment is just a lifeless and impotent pile of money.
A major problem with the modern stock market is its high degree of financialization. In a nutshell, financialization is when these lifeless and impotent piles of money are expanded through manipulation rather than production. Investors always pursue profit in any way possible, but since the 1970s, profitable investment into new production has been increasingly difficult. Instead, the capitalist class of investors and owners (and their compliant media) profit from techniques like overhyping underwhelming technologies (ex. cryptocurrencies or AI), pump-and-dump schemes, debt-leveraged buyouts, gambling in derivatives markets, and plain old financial fraud. These allow capitalists to simply siphon existing value, rather than producing new value. In this way, stocks become financial ends in themselves, rather than vehicles for financing new economic production. They entitle holders to a portion of the raided bounty.
This gets to a central, and mistaken, belief of any capitalist stock market or economy: that anything profitable must be socially positive. A quick look at the news should disillusion anyone serious about peace and liberation of this notion. The destructions of Gaza, Iraq, and Afghanistan have been extremely profitable for weapons manufacturers. The housing crisis has been extremely profitable for real estate investment trusts. Price fixing scandals have been extremely profitable for grocery monopolies. War, homelessness, and hunger are all good for the stock market, but have horrific consequences on the masses of the world.
This shows that the ‘stocks up good, stocks down bad’ principle can only hold for someone disinterested in peace, shelter and healthy food, or invested in war, homelessness, and hunger. However, this economic flattening of social factors is taken a step further, through stock indices, from firms like Dow Jones, Nasdaq, and S&P. These indices compile major stock prices into a single number, one price used to represent the economy as a whole. Abstracted as such, myths about economic health became all the easier to perpetuate. And capitalist governments and media never miss a chance to claim credit for rising stock indices. That’s because this has become an unquestioned marker of growing collective prosperity.
Here, we can introduce the second major issue with taking stock markets as representative of all economic activity: massive inequality in who owns stocks. When capitalist governments and media talk up stock market gains, the elephant in the room is that, according to a 2021 survey, only 39% of Canadians own stocks. So the majority of Canadians don’t directly benefit from stock market gains. This doesn’t even capture the true inequality in stock ownership, as investment is obviously highly concentrated in the capitalist class of institutional shareholders, company owners, and professional traders. Many Canadians may have a few shares in specific companies, but those who live off stock market income are Canada’s true social elite. This divides a majority who work for wages, and a minority who luxuriate on stock market income.
Additionally, there are countless anti-worker methods that companies and investors use to raise stock prices. These include cutting jobs to lower expenses, raising prices on essential goods that drive up workers’ cost of living, offshoring industry to countries with more exploitable labour, and stripping functioning companies to sell them for parts. Companies and even unions have also taken steps to connect labour to the stock market by replacing guaranteed pensions with investments through pension funds. We will examine these problems at a later date.
Stock markets today struggle to connect investment with new production, encourage fraud and scams, and drive gains that either don’t reach, or actively harm, workers. So how can we better capture the full scope of economic impact? In the next post, we will explore externalities, which is junk economic-speak for everything left out of a company’s financial statements.
If you're interested in these ideas, don't hesitate to reach out. This project is a conversation, not a lecture, so all good faith feedback is encouraged, especially from trained economists.