I was playing with the Dow Jones graph over at Google Finance the other day. You can pull the sliders to show different date ranges all the way back to 1970. You can do this with any ticker symbol, actually. It's pretty cool - like Google Earth for stocks. But since I'm in a state of denial about my own investments now, I wasn't looking at any particular stocks or funds. I was only in the mood for the big picture. To remind myself that everyone else is hurting just as badly, I guess.
Anyway, looking at the big picture Dow Jones graph: from 1970 to about 1985, the Dow didn't seem to change appreciably. That is, it goes up and down but has no steady, long-term rise or descent.
This is the reasonable behavior I'd expect of a stock market which was created to facilitate speculative investment in business: up sometimes, down sometimes. "The market" performs as nothing more than a set of rules to allow people to invest in enterprises they're betting will be successful. And it's also what I would expect from a market that limits participation to those wealthy enough to afford losing money here and there.
Not everyone could play in those days, or at least it wasn't as easy. You had to know a broker, and you had to put bigger chunks of money in at a time to make it worth paying the brokerage fees. Things were slower and more cumbersome, and people tended to invest in a stock for a longer period of time.
But when you get to the 1990s the character of that line is different. It begins its steepening upward climb, and it gets more jagged and jerky overall.
Could this really be a reflection of all the world's businesses doing better, remarkably better, all at once? Really, it seems to be a magical change.
Or could this be the point where all the "common folk" decided they wanted to get in on the game too, but because they didn't have the nerve and the cash to place their bets stock by stock, they started pouring all their money into mutual funds as if they were magical, high-yield CDs?
And because everyone started doing it all at once, it seemed to be work just fine, for quite a while.
Those google charts are a nifty tool, but they do something deceptive when you zoom into shorter ranges of dates. They re-set the range of numbers on the y-axis. Looking at shorter term-data, things seem perfectly normal, regardless of which dates you're looking at. (Unless you look at one of the crashes in the 80s, or the bursting of the tech bubble. Or the past month.) It's only by zooming out the graph like this that you get the feeling that things might be dizzily insane.
It seems like that period in the 90s marked a change in how we thought about money. Or maybe it just feels that way to me, since I came of age in that period and got married and started investing in mutual funds myself. Money ceased to be that thing I worked for and saved and used to pay for the things I needed. Or it ceased being only that. Money turned into something more abstract, like a game-piece. It became a score counter in a video game.
Did other people feel the same way, around then? Did older people too, or just my generation? Because, according to this chart, the investing habits of millions of people must have changed around that time, and I wonder why that is.
The Internet was coming of age around then too, and I think this made people more comfortable with the technological abstraction of money.
It had once been a psychological challenge to divorce cash from gold and accept that paper currency didn't represent anything tangible. That the Fed was welcome to print as much cash as they felt we deserved was trippy enough in itself. Thinking about that feels a little bit like staring into the void.
But in the nineties, people started getting comfortable thinking about money as data. Money wasn't, any longer, an object you could put in your pocket and carry with you. We discovered online brokerages and day trading to handle our investments. On the personal level we turned to ATM and credit cards. Hey, you didn't have to worry about losing your wallet or being mugged. Sure, the merchants lost about 3% of every transaction to processing fees and left all their financial data electronically available to audits and hacks, but that was just more profits for the financial sector to pour back into the economy, right? And the convenience! Companies could track what you bought, but you could go online and check your credit score! What a trade!
I wonder. Is there a dollar bill printed for every dollar of profit that shows up in our investment accounts? And does the Fed destroy cash when the economy shrinks? Sometimes I'd like to take a course in economics. Where does all the money come from and where does it go? If it's just data, what happens when an asteroid hits the planet and wipes out all our data in a massive EMP blast? Or a terrorist. I bet they could do a lot more damage to the economy with EMPs then conventional explosives.
Anyway, looking at this chart of the DJIA with a long-term perspective, it's hard to see the prosperity of the past fifteen years as anything that can endure. It seems like all those folks (myself included) who got giddy and threw our lot in with financial planners and mutual fund managers are pulling out and thinking about saving cash again.
And really, I think this could be a different kind of prosperity, a simpler kind, a more sustainable kind.
I won't resent the money we've lost on mutual funds over the years. That speculation did finance some wonderful things; think of it as a voluntary tax that helped to build the internet and lay the groundwork for hybrid cars and, I don't know, a whole bunch of medical advances. You know. All that stuff we invested in.
But now it almost feels good to slow down, catch our breath. Let's let house prices keep falling so the folks who saved their cash can put a roof over their heads. Let's learn to waste less and get more life out of old technology. (Hooray for Linux. Hooray for typewriters. Hooray for seeds and honeybees.) Let's learn to talk to our neighbors and borrow tools, because we don't all need to own our own lawn mowers and snow blowers, do we?
I'm looking forward to this recession with the same childish enthusiasm I used to feel before a hurricane. Let's hope it's strong enough that we can spend some time together around the fireplace and the piano with the candles and kerosene lights to read by.
And let's just hope it's not strong enough to knock the house down.
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