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There Is No National Economy

Earlier this summer my family and I spied the Yes Men, our local culture jammers best known for practicing audacious “corporate identity correction.” They were at the Troy Farmers Market. Trailed by a camera crew, they were wearing ripped business suits and wandering dazedly about. We never found out exactly what the project was, but it was pretty easy to come up with a plausible guess: They were broke financiers discovering what a real, honest to god market looked like.

Clearly, this is on my mind this week on account of the latest installment in the unraveling of the gambling bonanza known as Wall Street.

The other thing the hullabaloo surrounding the collapse of Lehman Brothers and purchase of Merrill Lynch has been reminding me of is conversations I’ve been having with people across the country on the fallout of the subprime mortgage crisis. One of the things they keep pointing out over and over is this: There is no national housing market. L.A. is not Cleveland is not Seattle is not rural Georgia. That’s why it’s so hard to describe what’s happening to housing markets when you’re taking a national view.

Taking it one step further, Kermit Lind, a law professor at Cleveland State University, argues that people on Wall Street acting as if there were one national housing market is a large part of what got us into this. They started to act like they could know enough when they bought these bundled packages of loans from all over to have any idea how good of an investment they were. They thought they didn’t need any information about local economies, didn’t actually need to know anything about the specific houses, neighborhoods, borrowers, or loans that were underpinning their “market.”

Of course this is not surprising. I’ve said it before, and author Doug Henwood said it before me: Wall Street is not actually about investing, it’s about speculating. And as such, it’s a ridiculous measure of the health of the economy.

Investment happens when someone with some resources lets someone else use them, with the expectation that that person will be able to use them to develop their capacity to provide a good or service in some way that will allow them to return the resources, plus a little for the privilege of having borrowed it—either as interest or as profit sharing.

Speculation, on the other hand, is buying something, whether it’s real estate or stocks, in the hopes that for reasons that have nothing to do with the money you put in, the value will increase and you can pocket the profits. For example, nearly all of the stock market’s activity is about stocks changing hands in hopes their values will change, not infusions of capital to enable a business to grow.

Speculation rarely does anyone but the speculator any good. Speculation on real estate leads to vacant lots and crumbling buildings that can’t be fixed because someone is hanging on hoping someone else will do the investment to improve an area so they can reap the rewards of increased values. Speculation on stocks leads to all the bizarre kinds of things that CEOs do to privilege increasing quarter-by-quarter returns at the expense of long-term stability.

How did the speculation frenzy of Wall Street become our measure of how the economy is doing, as opposed to, say, measures of per capita income or savings, poverty rate, unemployment, patents, efficiency gains, improved public health, increased leisure time, or any of a number of other more concrete indicators of our well-being? Why has even NPR decided that the Dow Jones Industrial Average is worth reporting with a straight face as a meaningful number that reflects something about “the economy”?

Well, maybe part of the problem is that like with housing markets, there is no national economy. Detroit’s economy is just not the same as Silicon Valley’s. New York City’s economy has more to do with London’s and Dubai’s than it does with Louisiana’s. Ohio’s banking and land regulations are different from Vermont’s, and generate very different mortgage markets. A drought in the Southwest doesn’t topple our Northeastern farmers markets.

We can’t tell if we’re in a national recession because some places are and some places aren’t and some places have been for decades.

Given that, most of the measures I suggested above are pretty meaningless when averaged out across the whole country. Perhaps that’s why we turn to Wall Street as a symbol of some mythic unified “economy.” So we have something simple to measure and report on.

Now, our regional economies are certainly not isolated or independent. There are national (well, global) markets for specific commodities. National regulations and tax policies and spending priorities affect us all.

And what happens on Wall Street also affects all of our local economies—by loosening or restricting availability of credit, driving employment and merger decisions of companies we work for, inspiring fraudulent mortgage practices to fulfill a bottomless demand for high-return “low-risk” “investments,” and so on.

So I won’t say we should stop paying attention to what’s happening in the stock market. But perhaps we should not look at it as a reflection of reality, but more like a predictor, a warning. Perhaps we should watch it like we watch the weather or the spread of epidemic diseases—for clues about what it will bring, how its whims and greed and blind spots will trickle down to the regional economies that matter, and how we might consider protecting ourselves.

—Miriam Axel-Lute

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