Benjamin Studebaker

If you ask a Trump supporter to name some of the president’s accomplishments, invariably one of the first responses you get is a booming stock market.

The thing is, a booming stock market is not a good economic indicator. Not in this day and age. Here’s why.

I like to think of the post-war stock market as having four phases:

1. The Post-War Period, 1950-1970, in which the S&P 500 doubles from around 50 to 100, with only minor and ephemeral setbacks.
2. The Crisis of the 70s, 1970-1980, in which the S&P 500 oscillates around 100, making no serious sustained gains.
3. The Prime Neoliberal Period, 1980-2000, in which the S&P 500 multiplies by 14, climbing from around 100 to around 1400.
4. The Millennial Crisis, 2000-?, in which the S&P 500 oscillates wildly, making no sustained gains about 2000 levels.

You can see each of these periods distinctively.

The Post-War Period:

The Crisis of the 70s:

The Prime Neoliberal Period:

The Millennial Crisis:

One of the many things that annoys me about contemporary reporting on the stock market is that so many people pretend that the stock market’s natural, default behavior is The Prime Neoliberal Period. But we’ve seen four totally distinct kinds of stock market behavior since the war–slow, steady growth in the first quarter century, stagnation in the next decade, rapid growth in the next two decades, and then wild oscillation in the final decade and change.

You may have noticed that I ended the graph for The Millennial Crisis at the start of 2013. This is because after 2013, the stock market had a run of growth above and beyond the levels achieved in 2000 and 2007. This growth began early in Obama’s second term and has more or less continued under Trump. I left those years out because it’s not obvious whether they are the beginning of a new period similar to The Prime Neoliberal Period or whether they are a false lead in what may turn out to be a prolonged period of intermittent crisis. If we add those last few years, the graph looks like this:

The S&P has run up an additional 66% or so over the previous two maximums. Most commentators seem to assume that this is broadly sustainable–there might be a little overheating, but we’re not going all the way back down to the 1000-1500 range.

Now I’m going to show you something cool. If we look historically, the S&P growth rate has often been totally disconnected from the GDP growth rate. When we compare the average annual real GDP growth rate during these periods with the average annual S&P growth rate. We see that economic growth has more or less collapsed since 2000:

But the S&P’s growth rate is all over the place:

Some key things to notice:

• The real economy never recovers much of the steam it loses after the Post-War Period–the 80s and 90s are great for investors, but not much better than the 70s for ordinary people, and the years following 2000 have been pretty bad for everyone.
• During the last four years, the S&P has grown almost as quickly as it did during the Post-War Period, but this has come alongside only a very tiny bump in the growth rate, which is still far below both Prime and Post-War levels.

So it’s not really possible to plausibly argue that we’re in a new Prime Neoliberal Period, because the rapid stock growth is not accompanied by annual GDP growth of around 4%. If the stock growth is here to stay, all this means is that it’s possible to have a lot of stock growth without doing much to help anybody. Now, to me that doesn’t sound very plausible–how can stocks grow rapidly even as the real economy grows only very slowly? It sounds unsustainable, doesn’t it? But no one living in the Post-War Period would have thought the Prime Neoliberal Period could have happened, so we can’t dismiss the possibility entirely. One of two things is happening:

1. We are still in The Millennial Crisis, and the recent growth will prove to be similar to the growth of the late 90s or mid-00s–ephemeral and fleeting.
2. We are in a fifth phase, which I’ll call “The New Gilded Age,” in which the stock market grows relatively quickly (albeit slower than during the Post-War and Prime Neoliberal Periods) even as the economy grows at a historically crummy rate.

So the question Trump supporters need to answer is why should we regard either of these as an achievement? An achievement would be bringing back the growth patterns (in both the real economy and the stock market) that prevailed during the second half of the 20th century. Right now, all we’re seeing is moderately large handouts for investors alongside Bush or Obama type growth rates. That’s not as good as what we saw under Clinton or Reagan or Nixon or Johnson. It’s not “making America great again”.

And if the Trumpeteer reply to all of this is that the world’s a different place than it was in the 20th century, that the growth rates we used to see just aren’t possible anymore, then I have a further question–why didn’t they accept that answer when Obama supporters gave it to them? Because they believed we really could do a lot better. And if they still believe that, before long they’ll have to concede what even the biggest fans of hope and change eventually had to concede–their guy just couldn’t get it done, and the only way to defend him was to settle for less than they’d hoped for.