June 20, 2018
In an interview with NPR reporter John Ydstie discussing President Trump’s latest round of tariffs on China, host Rachel Martin noted the decline in stock markets worldwide in response to tariffs and asserted that when the markets are down, everyone loses. This is not true.
If the market is down because participants accurately recognize there will be less economic growth, which also means less profits, then it is reasonable to assume that most people will lose. However, this is only one reason for the market to decline.
The market could fall because investors are less optimistic for no real reason. In that case, people like Bill Gates and Elon Musk have less money, but the bulk of the population who own little or no stock are not directly affected. If wealthy stockholders spend less money in response to their loss of stock wealth, then there is less demand in the economy.
If the Fed is concerned about excess demand, this reduction in demand will allow for it to put off interest rate hikes it might otherwise have made. That would mean people would be able to pay lower interest rates on mortgages and other loans. In effect, the lower stock prices are allowing more consumption for the bulk of the population by reducing the consumption or luxury spending (Elon Musk’s or Jeff Bezos’ space dreams) of the wealthy. Most people would not consider themselves hurt in this scenario.
Of course, the stock market may drop because income is shifting from profits to wages or from profit to taxes, both cases in which most people would fairly directly benefit. In the first case, they would get higher pay, in the second there would be more revenue for the government to spend on public goods.
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