The *Real* Dow 12,000 Story

Daniel Gross on a new Republican talking point, "Dow 12,000":

How Now, Grown Dow?, by Daniel Gross, Slate: The Dow Jones industrial average first closed above 12,000 on Oct. 19, and has remained above that lofty benchmark ever since. ... Dow 12,000 quickly became a Republican talking point. ... Dick Cheney boasted that "we've got all-time record highs on the Dow Jones Industrials again today." ... White House flack Tony Fratto noted that "we're seeing record highs in some of the markets, and that tells us, and we think it tells Americans, that there is a great deal of confidence in our economic future."

So far, Republican candidates don't seem to be benefiting from the Dow record, which is less surprising than it seems. For starters, the Dow's success does not mean that stock-market investors in general are thriving, because the Dow does not well represent the whole market. The Dow has a long and distinguished history... But as an overall stock-market proxy and investment tool, it's an also-ran. The ... index only accounts for less than one-quarter of the market. And because of its weighting system, the performance of a few stocks can have a disproportionate impact. ...

The S&P 500, whose constituents represent 80 percent of the overall market, is a much more accurate gauge of general market performance. ... And when you look at the S&P 500, it's clear that the stock-market recovery is not as broad as the Republicans would like you to think. Though it has recovered substantially from its 2002 low, the index is still off nearly 10 percent from its 2000 peak. As for the tech-heavy Nasdaq 100, ... it would have to nearly triple in order to set a record high. So, the claim that "the stock market" is at an all-time high simply doesn't match most investors' experiences.

What's more, 12,000 doesn't really even represent a record high for the Dow. In absolute numbers, the Dow is higher than ever. But.... In real terms, the Dow is still nowhere near the peak it hit several years ago. ...

[S]ome of those who are trumpeting the high nominal value of the stock market are urging people to focus on the real, inflation-adjusted value of another asset that has been at record highs recently. Take a gander at George Will's absurd column last week. ... Will celebrates the record nominal high in stock prices but urges readers to focus on the real price of oil. By mixing and matching real and nominal, Will could just as easily have argued that oil is more expensive than it has ever been, while the Dow is barely at the level it reached in 1999. If Democrats controlled the levers of power, he'd be making precisely that argument.

The distinction between the performance of the Dow and that of the other market indices is a perfect metaphor for the economy under Bush. Assume the stock market represents America. The Dow components—the tiny minority of the richest—are putting up record numbers, while the masses are struggling to do as well as they did in the late 1990s.