Dow closes at 14,253.77 – Celebrating Inflation

Dow closes at 14,253.77 – Celebrating Inflation

Gary Hunt
Outpost of Freedom
March 6, 2013

The news over the record closing of the Dow Jones Industrial Average, yesterday, March 5, 2013, is hailed as an achievement that demonstrates the recovery of the economy, in no uncertain terms.  The Dow, after all, is the indicator of the health of the economy – in most eyes, anyway.

So, let’s just look at what we are celebrating. The previous record of 14,164.53 set October. 9, 2007, nearly six years ago, became the benchmark for future records.  Six years to regain that which was lost, and has remained so, through the entire current administration. There is little doubt that the government was doing everything they could to demonstrate the success of their oft questioned economic policies.

So, is this really an advancement in the economy?  Well, I’m a not an economist, nor do I have a grasp of the complexity of economics. I am but a simple man who must endeavor to see the world in the dim light of my experience. So, put on your night vision goggles and follow me into the realm of reality.

In 1963 you could buy a nickel candy-bar for, well, 5 cents – hence the name, nickel candy-bar. The last time I bought a nickel candy-bar it cost me about $1.50 – that about 30 nickels. Now, I don’t really know what a nickel candy-bar costs, but I do know that the “purchasing power” of the nickel is now equivalent to what would then be 0.17 cents (5÷30).

In 1963, the Dow record was 714.81 (http://www.scaruffi.com/politics/dow.html). Now, if we consider the 714.81 to be dollars, we can see that it would take 14,296 nickels to be equal to the value of the Dow.  Today, however, it would 285,075 nickels to equal the value of the Record Dow closing of 14,253.77.

Now, this might be a little confusing, so, let’s look at it from the other side. If we take the 14,253.77 and divide it by 30 (The approximate change in purchasing power), we end up with 475.13. That is just about two-thirds (66%) of the then closing of 714.81. So, in realistic terms, the exalted record of yesterday is not even close (“in current dollars”) to what the value of the Dow was just 60 years ago.

Now, this consideration does not address the manipulation of the content (included stocks) of the Dow. Over the years, certain stocks were removed since they were “volatile” (can you say lowers, which would bring the average down) and were replaced by more “stable” stocks (which kept the average up), making, from a pure economic standpoint, and even more drastic disparity between the then and now.

So, we must consider whether the economists who so cheerfully praised yesterday’s closing are really, in all honesty, celebrating a manipulation that has one appearance, though, in fact, celebrates the effect of inflation on the pure numbers of the New York Stock Exchange?

 

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3 Responses to “Dow closes at 14,253.77 – Celebrating Inflation”

  1. SleepySalsa says:

    I think this demonstrates that highly indoctrinated people will believe anything you tell them, provided it comes from an authority figure (such as all these “experts” I’ve always heard about) and the explanation itself sounds “reasonable,” no matter how full of bullcrap it is, objectively. Anyone with even the most basic understanding of the free market (and who is not a Keynesian) knows that inflation is the most pernicious hidden tax, because it robs your wealth by artificially reducing the purchasing power of the currency. As Henry Hazlitt said, “The cure for poverty is production,” and this phony mixed economy that is based primarily on imaginary financial vehicles and an alleged “service” sector DOES NOT count as production.

    What also must be understood is that most economists do not practice what they preach, even the ones who pontificate about the free market, considering that they usually tend to be ivory tower academics who are subsidized by the State through tenure and similar government protections. They are essentially a priest class who provide ex post facto justifications for central banking. What this demonstrates is that even they don’t believe in their own theoretical frameworks, for if they did, they would totally revamp the economics profession by subjecting it to market forces. Until such time you have economists who actually practice laissez-faire, they will continue to appear to be hypocrites of the worst kind, particularly those who claim to defend Liberty.

  2. Even Hand says:

    Any chance that the flood of stimulus fiat dollars are raising the volume of the Dow? The Dow will rise naturally, if it is truly based on volume, if there is an increase in population and a corresponding increase in participation in the stock market; however, to the extent it has risen at the same time our economy has been flooded with a slough of fiat dollars lends credence to the suspicion this is an unnatural and artificial rise of the Dow.

  3. Give Me Liberty "Scott" says:

    Well written… Too bad we can’t awaken the brain dead and thanks for sharing!

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