IN A BUBBLE
GameStop’s surprise surge was front and center, but stocks don’t track real-world economics.
This column is not about GameStop, though not for lack of trying. When the aging video game retailer emerged as the hottest stock on Wall Street, a story just unexpected and absurd enough to fill the new Trump-shaped void in our nation’s media diet. I was instantly hooked.
I found the initial narrative irresistible — scrappy online traders were taking on greedy hedge funds and corrupt Silicon Valley tech bros while also saving a business that is a relic from a longed-for past.
Then I was struck by a larger absurdity buried in the ocean of GameStop content through which I’ve been wading: Why was I — why were so many of us in media — spending so much time obsessing about a story that mattered to so few people? Indeed, a story that was almost proudly disconnected from the real world, telling us so little about the larger economic forces shaping our lives?
I’m not just talking about GameStop’s bubbly stock price. I’m talking about the entire bubbly stock market, whose gyrations during the last few decades have made it less and less of a reliable proxy for understanding the health of the economy at large.
The connection between the markets and the economy has never been especially solid, but these days it couldn’t be more off, and the GameStop saga suggests a further dip into abstraction and entertainment. Thanks to free stock-trading apps like Robinhood and online groups like r/wallstreetbets, the stock market is growing into a kind of high-stakes multiplayer game whose moves can have more to do with memes and mobs than anything connected to, say, profits and losses.
There’s nothing too wrong with online games (well, other than the possibility that you can lose your shirt as shares plummet), but perhaps stock reports should come with the same caveat palm readers issue when telling your fortune: “For entertainment purposes only.” Treating stock prices as an economic indicator distorts Americans’ views about what’s actually happening, who exactly is winning and losing, and what sort of growth really benefits people in the economy at large. The more we focus on the market, the less of the economy we see.
On Wall Street, it’s hardly news that the stock market has grown as disconnected from reality. If you read the financial press closely last year, you’ll have come across many articles examining the divergence. “Repeat After Me,” commands a New York Times headline from May. “The Markets Are Not the Economy.”
The axiom becomes obvious when you look at how the markets fared last year. In 2020, as the virus surged, economic growth crashed, unemployment shot up, poverty spiked and democracy crumbled, what happened to stock prices? They soared to record highs, of course.
Why doesn’t the market track the real world? There are many reasons, but a big one has to do with wealth and access. The wealthiest 1 percent of Americans hold nearly 40 percent of the value of stock-holding accounts; the wealthiest 10 percent hold 84 percent of the value. The stock market also reflects the value of just a tiny slice of the U.S. business world — according to one expert, in 2015 there were 600,000 U.S. companies with at least 20 employees, of which just 3,600 were publicly listed.
And yet, despite this selfevident disconnect, we are flooded every day with news about the market, the numbers presented to us with all the importance of the weather forecast.
The economy, like the world, is messy and complex. Every day brings success for some companies and failure for others, promotions for some workers and layoffs for others. More objective measures of what’s happening tend to be broad and infrequent — the jobs numbers come once a month, for instance.
The markets, though, spit out numbers every weekday, offering a comforting — if illusory — sense of precision about an economic system otherwise too vast to comprehend. Since the Reagan era, Americans have been encouraged to play the market as if our lives depend on it, because they increasingly do; today, the markets shape the quality of your retirement, your kids’ education, maybe even whether you’ll get health care.
And while I’m glad that apps like Robinhood are giving more people access to a market dominated by the wealthy, I worry that these apps will exacerbate inequality rather than mitigate it. The Reddit amateurs may be gloating about their victory over elite hedge funds now, but in the casino of Wall Street the house always wins, and many Redditors may be flirting with financial catastrophe.