Dow 13,000
By Michael Johns
Predictions of the demise of the American economy are, regrettably, routine these days. But don't be fooled; they are also vastly overrated.
For the past six months at least, we have been subjected to predictions of sluggish growth, diminished productivity among small and mid-size capitalized companies, and an excessive and euphoric fascination with the growth prospects of so-called BRIC countries, including Brazil, Russia, India, and China.
Overhyped BRIC economies
Perhaps these BRIC economies ultimately emerge as the fast-growing havens of innovation they are hyped to be. But there is plenty of room for skepticism. Aside from India, the world’s largest democracy, none of the four has any tradition of democratic governance. And each of the four has long-standing fiscal and governance challenges, including fraud, excessive government economic intrusion, and political turbulence.
Underestimating American economic leadership
This week, the Dow Jones Industrial Average (DJIA), a major stock index including 30 large U.S.-based companies, blew right through 13,000, reaching an all-time high and sending the message that the United States continues to lead in the global economy.
What is behind Dow 13,000? It was largely unexpected and comes after analysts underestimated first quarter earnings for a number of leading U.S.-based companies, overestimating the negative impact that the sub-prime mortgage and other impediments would have on the valuations of the 30 DJIA giants.
The DJIA trading record reflects at least three positive factors in the U.S. economy: the American consumer’s ongoing and vibrant optimism; the prospects of a favorable end to the Iraq War (there actually is some progress); and several domestic and economic policies rejected by Clinton but embraced by Bush).
While Bush is suffering from predictably diminished approval ratings that have confronted nearly every U.S. president fortunate enough to earn a second term, the economy is now operating at nearly full employment, led by U.S. leadership in multiple growth sectors. And now, the world’s most closely watched stock index, led by by U.S. companies, has crashed through a perceived resistance barrier to reach an all-time high.
It is no small accomplishment and is certainly attributable to the continued promise of the American dream and at least partly to the generally free market and pro-growth policies of this administration, which supported sensible tax relief on dividends (paid by most DJIA stocks), which has attracted capital to these companies and now led the DJIA index to an all-time high.
Among the many metrics that should be used to assess the health of the U.S. economy, the DJIA’s trading valuation is not a primary one. Employment, wages, and gross domestic product growth are much more important.
But the fact that these 30 U.S.-headquartered giants are now trading at or near all-time highs reflects the promise that institutional and individual investors have in them—and each is linked to overall perspectives on the economic health of the nation in which they are based.
Michael Johns is a healthcare executive, co-founder of the U.S. Tea Party movement, and a former White House presidential speechwriter. Follow him on X at: michaeljohns