This Stock Market Drop Is Good

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In the past week, the U.S. stock market has seen its two biggest one-day drops in history. The market is down more than 10% from its recent high point, entering “correction” territory. This is good.

The nature of the stock market, historically, is that over short periods of time it goes up and down, but over long periods of time it goes up. This is why it is advisable only to invest money that you can afford to set aside for a decade or more—money socked away for retirement, for example. Every extended move of the stock market in a single direction—a long time going down, or a long time going up—just portends a reversal to come. Since the great recession bottomed in 2009, we have been in one of the longest bull markets in U.S. history. This is why the past several years have been filled with an ever-increasing frequency of financial news stories wondering “When will the party end?” The professional investing class, which makes a living by investing money rather than by working, depends on rising markets for income, and so they tend to be high strung and obsessive in their market-fretting. People who work for a living earn income from labor and need not follow these things so closely. Betting on the stock market to rise and make you rich in the near term is risky and stupid.

After the global financial crisis, central banks across the world poured trillions of dollars into the global economy in an effort to get things running again. One effect of this has been to raise the price of every sort of financial asset in the world—real estate, bonds, and stock markets in the U.S. and Europe and China and everywhere else. Everything is expensive. Thanks to a decade of easy money, there are no bargains to be had anywhere. By CAPE ratio, an accepted measurement of valuation, the U.S. stock market today has only been this expensive twice before in its history: Just before the Great Depression, and just before the tech crash of 2000. It is ignominious company to keep. Prices this high have historically come only before a crash. Even barring a catastrophe, expensive valuations like this indicate lower annual returns in years to come. People buying stocks at today’s prices won’t earn as much profit because they are buying high. Everything is squeezed to the last cent. When prices are too high, it is good for them to go down. Even if the decline is scary, you can then buy at more reasonable prices and therefore earn more money in years to come.


Then there’s the big picture: only half of American households own any stocks. (This figure includes everyone with a 401(k) or other retirement account.) The vast majority of them own less than $10,000 worth. Eighty four percent of stocks are owned by the top 10% wealthiest households. So, who will be directly impacted by the recent fall in the stock market? Rich people. They can afford it. America already immorally favors investors with our tax laws. Rich people who earn a living purely from their investments pay a lower tax rate than those of us who have real jobs. We need not cry for them when those investments decline.

Of course, there is an imperfect but real connection between the stock market and the normal economy that affects everyone. If the “correction” keeps plummeting down into “crash” territory, regular people inevitably suffer from rising unemployment and declining wages and generally sluggish economic activity. But we are not there yet, and furthermore, regular people already suffer from stagnant wages even during a time of booming stock markets, because rich people suck up all the profits for themselves. Fuckers. It is foolish to believe that an ever-skyrocketing stock market is the prescription for a healthy economy that serves everyone. We need to solve the fundamental problem of distributing the economy’s gains fairly. A skyrocketing stock market—which we have had for a decade now, and which the Republican party just foolishly and irresponsibly boosted with a $1.5 trillion debt-fueled stimulus package—cannot go up forever. It is like a balloon. Keep blowing it bigger with no moderation and it will pop. You have to let some air out to keep things safe. That is what’s happening now.

In a country where most people don’t own enough stocks to be hurt by a market drop, the only reason to worry about it at all is that we have designed an economy in which most people are obligated to rely upon the crumbs that trickle down from the mouths of the rich. That idiotic system, not the fluctuations of the Dow Jones, is what should be occupying our attention. For now, keep focusing on what’s really important: Taking money and power away from the rich.

Senior Writer.

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