Friday, 22 March 2013

Dow and FTSE, Joe and Josephine: Reality and the 'real economy'

Both the Obama administration in the US and the Cameron-Clegg UK coalition claim their respective economic strategies are creating new jobs, writes London journalist Paul Coleman.
   Improved labour market stats prompt Wall Street and City of London investors to borrow more and buy more stocks. Up goes the Dow and the FTSE.
   Bulging corporate profits and balance sheets get rewarded by huge bonuses and stock options. In turn, these reported successes loop back and lift stock prices...and so on it goes.

Dow and Footsie, Joe and Josephine
But deeper analysis suggests labour participation rates are falling in both economies. Mainly because more people are taking on second and even third jobs to try and make ends meet.
   That many new jobs are part-time, low-skilled and low paid is also overlooked. So, the statistical representation of reality swallowed by the Dow and the FTSE bears little resemblance to the actual reality experienced on the streets by Joe and Josephine.
  Christopher Caldwell, writing in London's Financial Times, agrees rising share markets merit cautious viewing. "What looks like a rally may just be the effect of elites passing money among themselves," says Caldwell.
   Hence, the gap between banking and finance and the 'real economy' seems larger than ever.

Paul Coleman, London Intelligence, March 2013

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