Krugman: Dow’s record high says as much about Trump as economy

Markets aren’t a good gauge of the economy, but they detect bull in Trump’s claim the economy is a cesspool.

By Paul Krugman /The New York Times

Last week, for the first time in history, the Dow Jones industrial average closed above 40,000.

Unlike many right-wing commentators, I don’t consider the stock market the best indicator of the economy’s health, or even a good indicator. But it is an indicator. And given the state of American politics, with hyperpartisanship and conspiracy theorizing running rampant, I’d argue that this market milestone deserves more attention than it has been getting.

Not to put too fine a point on it, but do you have any doubt that Republicans, across the board, would be trumpeting the Dow’s record high from every rooftop if Donald Trump were still in the White House?

The background here is the gap between what we know about the actual state of our economy and the way Trump and his allies describe it.

By the numbers, the economy looks very good. Unemployment has now been below 4% for 27 months, a record last achieved in the late 1960s, ending in February 1970. Inflation is way down from its peak in 2022, although by most measures it’s still somewhat above the Federal Reserve’s target of 2%. U.S. economic growth over the past four years has been much faster than in comparable major wealthy nations.

Yet Trump says that the economy is “collapsing into a cesspool of ruin.” How can such claims be reconciled with the good economic data?

Well, the numbers I just cited come from official agencies — the Bureau of Labor Statistics (which produces labor market data) and the Bureau of Economic Analysis (which estimates gross domestic product). And if you were a hard-core MAGA partisan inclined to conspiracy theories — but I repeat myself — you might tell yourself that the good economic numbers are fake, concocted by a corrupt deep state to help President Biden win the election.

Although I don’t have a way to quantify this, my sense is that conspiracy theories about the economic data have been proliferating as the news gets better. For example, have you heard the one about how the BLS is hiding inflation by removing coffee from the consumer price index? (It isn’t.)

But how do we know that the BLS isn’t cooking the books in Biden’s favor? The best answer, probably, is to learn something about both the bureau’s methods and its institutional culture; corrupting the data would be very hard. (Although autocrats in other countries have done such things, and there’s no guarantee that it wouldn’t happen if Trump, well known for his mendacity, regains power.)

Another answer is to look at independent, private business data, like surveys of purchasing managers, which tell the same story about declining inflation as the official statistics.

But if all that seems too academic and out of touch, there’s the raw fact of record stock prices. As I said, the stock market isn’t a very good indicator of how well the economy is doing. Nonetheless, it’s hard to reconcile Dow at 40,000 with Trump’s claim that the economy is a cesspool.

In particular, even though trying to explain stock fluctuations is, in general, a waste of time, the recent run-up in stocks probably reflects economic reports suggesting that the uptick in measured inflation this year was just a bump on the way to a soft landing.

Record highs for both the Dow and broader measures like the S&P 500 are also noteworthy given that back in 2020, during Biden and Trump’s second debate, Trump — who really does like to measure economic success by the stock market — said “the stock market will crash” if Biden won. Now, everyone makes bad predictions; Lord knows I have. But you’re supposed to admit your mistakes and learn from them, especially if they were driven by motivated reasoning.

Trump, however, has once again claimed that stocks will crash if he doesn’t win. He has also done something that I think has no precedent: trying to take credit for a rising stock market even though he’s out of office, claiming stock market gains mean investors are betting on his future victory.

That claim is, for lack of a better word, pathetic. And one of the things that still mystifies me about Trump’s political appeal is why more Americans don’t see this kind of whining and boasting as ridiculous.

But let’s pretend, just for a moment, to take Trump’s story about stock prices seriously. If we do, recent developments in the 2024 horse race provide a kind of test. There’s still a very good chance that Trump will win. But polling averages suggest that the popular-vote lead he had a few months ago has evaporated, even though yes, he appears to be ahead in key swing states. Betting markets still modestly favor Trump, but by much less than they did not long ago.

So if Trump’s self-aggrandizing theory of the stock market were right, stocks would be falling in response to his reduced odds of victory. Instead, they’re on the rise.

Once again, none of this should be taken as a reason to start seeing stock prices as a good measure of economic success. They aren’t. Jobs, inflation and real incomes are what matter, and the case for Bidenomics rests on these fundamentals, not the Dow.

But at a time when one side of the political divide is peddling dystopian economic fantasies, it makes sense to point to the undeniable fact that stock prices have been hitting new highs.

This article originally appeared in The New York Times.

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