Saturday, September 12, 2015

Managing perceptions ( repost )

Originally posted on Feb 28, 2013.  A lot has been written since then that is in support of the following proposition:

The current level of the Dow is just slightly over 14, 000.  This compares with what it was in 2007, just prior to the onset of the Great Recession.  What was the unemployment rate back then?  This from the BLS:

One of the most widely recognized indicators of a recession is higher unemployment rates. In December 2007, the national unemployment rate was 5.0 percent, and it had been at or below that rate for the previous 30 months. At the end of the recession, in June 2009, it was 9.5 percent. In the months after the recession, the unemployment rate peaked at 10.0 percent (in October 2009). Before this, the most recent months with unemployment rates over 10.0 percent were September 1982 through June 1983, during which time the unemployment rate peaked at 10.8 percent.

Compared with previous recessions, the higher proportion of long-term unemployed (those unemployed for 27 weeks or longer) in the recent recession and its post-recession period is notable.

Given the continual economic distress and unemployment (7.8%  & particularly, the aforementioned long-term unemployment), how does one regard the Dow Jones industrial average as a source of economic strength?  Only if you want it publicized as such and believed.  But these facts don't fit with that perception.  Hence, the management of perception through the use of highly visible indicators such as the Dow.

To what end?  It is a bit of speculation here, but I'd say that policy makers are hoping that the perception will make the reality. [emphasis added] That is to say, if the perception is of a robust economy, then a robust economy will follow.

I suppose it takes a bit of credulity to fall for this, but that is what this government is depending upon.  I wouldn't be a buyer of stocks, but that's been true for the last 4 years.  You learn new things all the time, though.  The thing that I think I'm learning here is the length to which some people will go in order to try to fool others.  The surprising thing is how little it takes.

No comments: