If you’ve ever turned on a cable news channel, you’ve heard anchors talk about how the stock market up means that the economy is good, or how a lot of people filing for unemployment means the economy is bad. The truth is, the American economy is a complicated beast that shouldn’t be reduced to just a single number. A lot of factors are at play. Yes, the stock market matters, as do job reports. But that’s not all that matters.
Growth rates matter
If you read that the American economy experienced modest growth at the beginning of 2018, that’s because even though things like a low unemployment rate are helping, consumer spending could be better. If people aren’t increasing their spending, that means there’s some financial uncertainty at play. People tend to spend more when they’re feeling confident about their financial status, and they tend to scrimp and save when that status seems threatened. Consumer spending is still increasing, but barely.
What about the stock market, though? If it doesn’t matter, why are news outlets so eager to report every increase or decrease? Well, they probably do that because it’s their job to report the news, and the stock market is a piece of the news puzzle. Most normal people, however, only need to pay attention to the stock market in certain circumstances. In general, day-to-day fluctuations aren’t nearly as important as long-term trends. Only about half of all Americans own any stock at all, which means the number of people directly affected isn’t as big as it may seem. If you’re interested in investing in the stock market, it’s probably because you’re at a point where it makes financial sense to do so. People who don’t have a lot of disposable income generally aren’t rushing to put what little they have into stocks, after all. Before you invest, educate yourself. Researching what stocks to buy is always going to be more helpful than just closing your eyes and pointing to a stock. Once you invest, you’ll no doubt be more interested in what’s happening on Wall Street, because you’ll have a personal stake in it.
The tax cut question
Unless you were in a cave with no Internet access at the end of 2017 and beginning of 2018, you no doubt heard something about the tax cut bill passed by Congress and signed into law by President Trump. Do tax cuts really boost the economy, though? That depends on who you ask.
A few years ago, the Congressional Research Service published a report that found no connection between top tax rates and economic growth. In other words, the service found no evidence that cutting taxes for the rich helps the economy in general. That wasn’t the end of the story, though, because Republicans in Congress said the report contained errors. Politico studied the issue and declared there to be no “predictable effect” on economic growth. In early 2018, Reuters took a poll of economists, the majority of whom said the tax bill would provide a short-term boost for the economy. One economist interviewed compared it to a “sugar rush.” We can make educated guesses, but, like many things, we’re ultimately going to have to wait and see. If it spurs long-term growth, then it will be hailed as a genius move. If it leads to negative growth, then Republican members of Congress could be at risk of losing their jobs, as could the president.