The Ultimate Republican Shell Game

My January 21, 2008 issue of Business Week Magazine contains a story that seems supremely important to me, and it’s even told there almost only in passing. Interestingly I can find nothing similar any place else, and why I find this surprising is that the situation highlighted seems to fairly scream that anyone voting Republican who is not mega rich has pretty clearly been taken for a ride.

Don’t look now, but we’re putting the final touches on the market’s Lost Decade, the worst showing for U.S. stocks since the Great Depression. That’s right. Call off the dogs. Send in the clowns. Color me presumptuous, arrogant, and ignorant of history. But the facts have my back.

We kicked off the millennium with an all-time high for the Standard & Poor’s 500-stock index, capping a remarkable 18-year stretch. A $10,000 investment in 1982 ballooned to a quarter-million by 2000.

The index’s average annual gains of 1.7% for the decade are the worst since the 1930s. Sure, we’ve got two more years to go. But 2008 has already opened with the biggest one-day drop in 25 years. And just a week into January the market gave back all its gains from 2007.

In all, the S&P 500 would have to surge a total of 54% by 2010 for the decade merely to match the lowly 1970’s. The current decades gains lag even those of the 1940’s – marred by Nazi marauding, Pearl Harbor, and Hiroshima. Go ahead and write off the market for the next 24 months. This decade is a lost cause.

Republicans worked real hard to get the average person into the stock market. Standard pensions are going the way of the dinosaur, replaced by IRA’s and 401K’s. Enron showed the folly of being too heavily involved with owning stock of the same company where a person is employed, but companies have been pushing stock at employees at an ever increasing rate.

Part of the “logic’ for this transition, of course, was the stock market gains for the eighties and nineties depicted on the chart. The promise, at least impliedly, was that we were all going to transition painlessly into members of the wealthy investor class, and my recollection is that the last time this particular shell game blew up on society was in the Crash of 1929.

What we’re witnessing certainly seems to bear the earmarks of a standard “bubble”. Bubbles cross the horizon with a certain regularity, and share the same characteristics going all of the way back to “tulip mania”, in Holland in 1636-37. An “investment” crops up and some start reaping large gains. The action starts to catch public attention, more people jump in, and even larger gains are tallied. Finally, the masses try for easy riches, the bubble bursts, and millions of lower income suckers lose their bet on a ticket for a trip to a life of luxury.

In a way, though, this whole experience could be looked at as a blessing in disguise. As bad as the damage from this experience has been, as painful as has been the flow of vast sums of money from the small stock investor to the ultra wealthy who pumped up this bubble to the bursting point, the massive transfer of wealth seen is nothing compared to what is waiting for us if we ever make the mistake of traveling down the road to the Republican dream of making Social Security a play thing for Wall Street.

Anyone want to bet that we don’t hear any mention of these numbers in the upcoming State of the Union Address?

(There is a beautiful bar graph that is in the magazine, but I can’t figure out any way to transfer it over here. Sorry!)

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