6.08.00
Greed vs. The Economy

6.08.00
City of Confused Angels

6.07.00
Corzine Looks Good, But…

6.07.00
Gore's Scary Internet Plans

6.06.00
Hillary at the U.N.

6.01.00
Clinton and Castro Game the System

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A Farmer's Tale

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All the Wrong Lessons

5.26.00
Intellectual Harassment in Connecticut

5.24.00
Another Silken Thread

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Tufts to be a Christian on Campus

5.12.00
Gore's Russian Fans

6/08/00 3:15 p.m.
Greed vs. The Economy
The new capitalist threat.

By Mark Mazzetti, correspondent for The Economist.

ast Friday, the Nasdaq jumped 6.4%, ending the best week in its history. On that day, the technology-driven index soared almost 231 points, as previously wary investors poured money back into the market in the wake of heartening economic news from the Labor Department. What was the cheery news that brought on the Wall Street buying spree? Simply this: The number of people with jobs declined by almost 1 million last month, the biggest monthly drop ever. Wow, for a while it was looking as if the unemployment rate were going to keep dropping toward zero. It's a good thing that that ominous trend has been reversed.

America's lust for inflated stock prices has officially brought us through the looking glass, where day traders are becoming downright giddy as the economy cools off. As one Wall Street analyst told the Associated Press, "There's a boatload of cash on the sidelines. More evidence of a slowdown could be material for a very strong summer rally.'' Of course, this logic has been used as long as there has been a Federal Reserve. A slower economy means less concern about inflation, which means less chance that the Fed will continue to raise interest rates. Lower rates are usually good news for corporate profits.

Yet the boom of personal investing has in a sense distorted how we view the health of America's economy. The Cult of the Individual Investor has so pervaded economic analysis that macroeconomic data are usually filtered through the lens of how it will affect the share price of Amazon.com or Dell. Thus, media coverage of the recent unemployment numbers spent far more time discussing how they would affect the market than explaining what they meant for the overall economy.

This isn't surprising, considering that the stock-market boom of recent years has been fueled largely by new money invested by people who previously cared little about the daily machinations of the financial world. These people are now hooked, and worry constantly about the long-term soundness of their investments. Companies understand the power that the individual investor now holds in the New Economy, and consequently are buying prime advertising time as a way of boosting their stock prices.

Consider the strategy of companies like Cisco or Nortel. Neither company makes a product that it can sell to the public, yet both are spending billions advertising on CNBC, CNNfn, and during major sporting events. Generally, the ads are full of hype: hyperbolic prophesies about how the company will change the world by revolutionizing the way people use the Internet. The companies know that there are enough potential investors out there watching the Final Four who may buy into the hype. Hawking stock on television has become just as lucrative as hawking beer or pickup trucks.

The advertisements for the online brokerages take a similar tack in appealing to the individual investor. They play on the theme of empowerment — how the average individual can take on the Wall Street elite (and get rich) armed only with startup money and a 56k modem. In one of the commercials, a middle-aged woman, while checking her dog for fleas, looks into the camera and proclaims herself to be a "modern capitalist maverick."

It has been a longstanding complaint of liberals that too often corporate decisions are made without taking into account anything but the company's share price. Lay off 10,000 workers, watch the stock go up 50 cents. In essence, it was a Marxist argument about labor vs. capital, which now seems passé as an increasing amount of American households own stock.

The rise of this investor class, coupled with the lengthy bull market, has turned that argument on its head. This phenomenon nevertheless comes with its own problem: namely, the growing conviction that what is good for the Nasdaq is good for the economy. For the past five years, a booming economy has indeed gone hand in hand with a red-hot market. Should the prospects for the two diverge, however, which is the one anybody is likely to care about?

For the "modern capitalist mavericks," is there really any doubt?

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