- - Tuesday, February 6, 2018


What triggered the 2,000-point Dow Jones Industrials index sell-off on Friday and Monday was the positive jobs report. That’s correct. Positive. Not only did employers hire 200,000 more workers during January, but the pay of the average worker rose by 3 percent after inflation. This was the biggest gain in wages in a decade. The labor market tightens.

Good news, right? Well, not in the weird world of Wall Street, where water is not always wet and sand from the Sahara is not necessarily dry. Stock traders and institutional investors were panicked by fear that inflation and interest rates will be rising soon.

There’s a further worry on the street where money grows, that faster growth of the Gross Domestic Product, or GDP, during this year will put pressure on the interest rate. The Atlanta Federal Reserve Bank on Friday predicted a sizzling 5 percent growth rate, based on economic data collected in January. This spooked Wall Street not once but twice.

This fear is based on economic sophistry. Such bankrupt ideas go back to the 1970s, when Keynesian economists believed that more people working and earning higher take-home pay translates into higher prices. But faster growth and a rise in employment and investment increase the supply of goods and services produced in the economy. When that happens, prices don’t rise, they fall. When the economy produces more apples, as economist Arthur Laffer reminds us, the price of apples falls.

It’s true that a rise in real GDP is usually accompanied by a rise in real interest rates, because the demand for investment dollars rises as businesses want to borrow and invest. This is actually a benign reflection of a more prosperous economy — not a reason to dash madly for the exits. Interest rates have been creeping up in recent months, though still at record low levels. The 10-year Treasury bill is still well below 3 percent and the mortgage rates in many areas are still at bargain-basement levels, below 4 percent. Is the era of ultra-low rates coming to an end? Probably. But some of us remember the 1970s, when mortgage rates bumped 20 percent. The rates are nowhere near that galaxy.

The inflation goblin may be looming just around the corner. Or it may not be. Life dispenses no guarantees. In an era of advanced global trade and rapid technological change, the pressure is for companies to lower their prices, not raise prices. Some energy prices have, in fact, risen in the last month or so, but oil prices are still just over half of what they were in 2014. The price of gold has ticked upward, but only barely. The prices of technology goods and most consumer items, from food to clothes and to computers and cell phones, are flat or falling. Wall Street seems to be terrorized by the prospect of one or two Fed interest rate increases, though that would likely squash the inflation pressures they fear.

Liberal politicians have for years agitated for higher minimum wages and more union power to jack up wage rates. At last, we are seeing wages rise, not because of government fiat, but because the demand for workers, combined with greater productivity, lends Americans of the working class greater bargaining power. Walmart, with its million workers, raised its minimum wage by $2 an hour to retain and attract good employees.

A raise for American workers is long overdue. Nearly two decades have passed since the average worker got a real raise, which is one large reason why middle-class voters were so angry with the status quo in 2016. Now we are starting to see workers benefit from Trump economic policies of lower taxes and lighter regulation, which is delivering higher benefits and bonuses.

It’s astonishing that Wall Street rebels and liberals cheer the market sell-off. That’s shortsighted in the extreme. When American workers earn more, they can buy more and companies can sell more. President Trump promised to deliver better times for working-class Americans, and the news about growing wages suggests that better times are at hand. The fundamentals of the economy are solid and the stock market will get over its jitters soon. It always does. Workers are finally getting a break. That’s a reason for a celebration, not a sell-off.

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