March 24, 2020
We know that Donald Trump is obsessed with the stock market, seeing it as the main measure of the economy’s performance under his tenure. Unfortunately, many non-Trump supporters, who don’t own lots of stock, seem to share his concern.
Let’s be clear what the stock market measures. It is not designed to measure the well-being of a typical household or even the overall growth of the economy. Stock prices are ostensibly telling us the expected value of the future flow of profits to a company. Policies that raise after-tax profits should raise stock prices, even if they are horrible for the economy, while policies that might be good for the economy should still lower stock prices if they will reduce corporate profits.
This means, for example, an increase in the corporate income tax of 10 percentage points should be expected to lower stock prices by 10 percent, other things equal. Regulations that lower drug prices and have publicly financed research (no patent monopolies) should send the stock price of the drug companies plummeting, just as Medicare for All would devastate the stock price of the health insurance companies.
If a progressive is hugely bothered by a plunge in stock prices, then they really don’t support progressive economic policy. Of course, that doesn’t mean it is good news that the stock market plummets because the economy is shut down by a pandemic, but the real bad news in this story is that the economy is shut down by the pandemic (and many people will get sick and die), not the stock market falling.