The rich are having a bad day
And you might lose your job
“We’ve got a threefold fear — manufacturing data that was poor, labor market data that was weaker than expected, and a Fed that seemingly won’t be here to help us until September, which feels like an eternity away.”[1]
Today, “[t]he Dow Jones Industrial Average had slumped nearly 900 points, or 2.2 percent, shortly after noon, while the broader S&P 500 shed 2.5 percent. The tech-heavy Nasdaq erased 2.9 percent. The sell-off builds on the turbulence playing out in global markets that sent Japan’s benchmark Nikkei 225 index to its biggest single-day drop on record. Cryptocurrencies also plunged, with bitcoin moving 7.4 percent lower.”[2]
One of the criticisms of Donald Trump in the pandemic was that he seemed to care more about a drop in the stock market than about human life, because he thought a bad economy would imperil his re-election chances (arguably, it was the pandemic, rather than the stock market or the economy that defeated him in 2020). My concern is that he might not be the only one who thinks that way. Stock market performance doesn’t actually reflect the economy, but I think a lot of people think that it does.
Hence a psychology that I tend to think outweighs so-called “market fundamentals.” In what complexity theorists call a destabilizing feedback loop, fear prompts selling, which leads to more fear, which prompts further selling.[3] When extreme, it’s called a “panic.”
On this occasion it’s “a reaction to worrisome economic data last week that moved the Nasdaq into correction territory on Friday after nearly a year of gains. Adding to the volatility is a spate of bad financial results from the tech sector and currency gyrations abroad.”[4] This follows a bout of inflation that might be beginning to ease, which itself follows the disruption of COVID-19. In addition to the stock market performance itself, that’s a lot of worry.
“There is no ironclad rule for when the official business cycle dating committee will declare that a recession has occurred,” writes N. Gregory Mankiw in a classic textbook, “but an old rule of thumb is two consecutive quarters of falling real [gross domestic product].”[5] Such findings can happen long after the event, so of course, speculation about whether we’re in a recession can run rampant in the meantime.
I worry that all that worry has primed us for a recession. There was a crash with the pandemic, but it was short-lived. Since the pandemic, there’s been a constant neoliberal drumbeat of worry, always there, never really abated, so people may infer that we are in a recession from a stock market drop and rein in their purchases, thus slowing economic activity.
In this way, a recession becomes a social construction—something is something because we agree that it is—before it conforms to how economists define it. We’re in a recession because we think we’re in a recession—in this case, both in the social construction and through linear cause and effect.
It’s possible to argue that the stock market moves today are an over-reaction, that the psychological reaction may be unwarranted, and indeed this is what Joe Biden’s administration says.[6] That’s no consolation at all if you’re among those who get laid off in an economic slowdown.
[1] Liz Young Thomas, quoted in Aaron Gregg et al., “Dow sinks nearly 900 points in global market selloff,” Washington Post, August 5, 2024, https://www.washingtonpost.com/business/2024/08/05/japan-stock-market-crash/
[2] Aaron Gregg et al., “Dow sinks nearly 900 points in global market selloff,” Washington Post, August 5, 2024, https://www.washingtonpost.com/business/2024/08/05/japan-stock-market-crash/
[3] Abha Bhattarai, Rachel Siegel, and Jeff Stein, “Stock markets are reeling, but economists say: Don’t panic yet,” Washington Post, August 5, 2024, https://www.washingtonpost.com/business/2024/08/05/global-markets-economists-calm/
[4] Aaron Gregg et al., “Dow sinks nearly 900 points in global market selloff,” Washington Post, August 5, 2024, https://www.washingtonpost.com/business/2024/08/05/japan-stock-market-crash/
[5] N. Gregory Mankiw, Principles of Economics, International Edition, 6th ed. (Australia: South-Western, Cengage Learning, 2012), 502.
[6] Abha Bhattarai, Rachel Siegel, and Jeff Stein, “Stock markets are reeling, but economists say: Don’t panic yet,” Washington Post, August 5, 2024, https://www.washingtonpost.com/business/2024/08/05/global-markets-economists-calm/