The Stock Market's Cold Lessons

The metaphor is a vivid reminder of the worried investors sitting in their brokerage offices this week mesmerized by the astonishing gyrations in the stock market. Like the descending cold Fall weather, a cold cloak of fear is spreading over a leisure class that -- like a lower class that plays the lottery and the slots -- think they can get something for nothing. The largest percentage of retired people in the country's history depends on the stock market for their unearned income. The dependency can only grow worse. This class is living longer and growing in absolute numbers.

When Social Security was established in the 1930s the official retirement age was 65 and the average American male's life expectancy was 67. The retirement age is still 65 but the average American male can expect to live to 78. Social Security was never an actuarial insurance program. The working generation simply underwrote the retired generation with the expectation the next generation would do the same for them.

The Baby Boom simply imposes too big a burden on Baby Bust generation that followed it -- that is the reality behind the Social Security "crisis" -- and many people turned to the stock market to supplement retirement. While that eases the pressure on congress to provide adequate Social Security, the retired generation's demand for double digit returns on its investments is reducing the money to pay wages to the generation doing the work. Double digit returns from businesses that historically returned single digits cannot go on indefinitely. If that is true then stocks are grossly overpriced.

The stock market may begin to fall, it may continue its dizzying rise before it comes back down. Few market professionals can adequately explain market behavior right now. One thing is certain. The market will decline. There is no relationship between the price of stocks and the ability of the companies to produce goods. That cannot last indefinitely. The problem is the people who preside over the markets do not know that from first hand experience.

Much of the political conflict in our society has less to do with liberals and conservatives, Republicans and Democrats than it has to do with a young, self absorbed generation that has never known hard times busily dismantling a social and economic structure built by the generation that lived through The Great Depression and World War II.

Their social and economic structure was built deliberately to cushion the country if the stock market crashed again and threw the nation into another depression. Not surprisingly, a generation that believes it has repealed history finds the older social and economic restraints confining and its graying advocates effete.

The gyrations on the stock market are producing a whiff of nostalgia to the aging generation and naked glimpse into the pit of reality for the younger gentry. The cold cloak of fear that briefly enveloped both generations is palpable. It will probably have little effect on public opinion -- for now. The loot in the money markets -- like lottery loot -- is too tempting.

It may be the stock market's ride in Fanstasyland is not yet over. But remember the last week in a month, a year or a decade when people realize the value of stock is supported by ephemeral optimism instead of substanital production. And hope that the inevitable deflation is slower than it was in 1929 -- for all our sakes.

No one who has seen a depression or a panic ever wants to live through one again.