If we could remind - stock market indices are not inflation adjusted

There are those for whom the partisan political narrative is all of course. Ourselves, we prefer to start with facts:

It may be over-the-top bonkers, impossible to reconcile with, say, a stock market touching new highs, but it has ideological energy from which our dominant rightwing media feeds. The Labour leadership hopes successful delivery and economic and social improvement will expose the hyperbole for what it is. But fire has to be fought with fire. To contest it we need a credible counter narrative rooted in facts on which a recognisable ideology can be built that speaks to the majority of the electorate’s core beliefs. There is a “we”; there is a common good. Politics is a battle of hearts as much as minds.

Well, yes, that politics chases hearts not minds we regard as to the detriment of politics at least so far as economic management is concenrned.

But that fact of a stock market high. Stock market indices are not adjusted for inflation. So, as each pound becomes worth less given political management of the money supply a stock market index will rise to be at just the same real value as the starting point. Or, of course, not as the case may be. If the FTSE100 were at 7,500 in Jan 2020, just as lockdown loomed, then to be ahead of that value now it would need to be 9,600 and up. Of course the FTSE100 was at 7,500 in Jan 2020 and is currently just below 9,200 - it is not at a record high at all, it has fallen.

But there’s more! 75% of the revenue accruing to firms in the FTSE100 is from outside the UK. This means that “the stock market” is not a measure of the success of the UK economy. It’s a measure of what’s happening in a stock market that just happens to be located in London. Further, given that it is dominated by revenues in non-sterling currencies as the £ falls it should rise in £ terms. It’s simply not a measure of the UK economy.

Now we do think that Charlie D went a little far here - as did Charlie D given that he was writing a satirical figure - but there’s a useful element here all the same:

Now, what I want is Facts. Teach these boys and girls nothing but Facts. Facts alone are wanted in life. Plant nothing else, and root out everything else. You can only form the minds of reasoning animals upon Facts; nothing else will ever be of any service to them.

That useful part being that we’ve really got to start our economic analysis with the economic facts before we decide upon economic policy. Pity that Willy Hutton, the source of the first quote, seems not to agree. Which is odd, for we’re sure he knows all this, he did start out as an equities salesman, no?

Tim Worstall