Yesterday's special issue of The New York Times Magazine, a series of articles on the psychology of the stock-market boom, included some telling meditations on the peculiar neuroses that having--or not having--money brings. (Caveat emptor: I wrote one of the longer features.) Michael Kazin, a well-respected historian of Populism, weighed in with a welcome piece on the disappearance of class anger, pointing out that most Americans still don't own any stock at all, that the dramatic increases in capital gains over the past 15 years have far outpaced meager increases in workers' wages, and that the connection between a company's market capitalization and the work of its employees seems increasingly tenuous.
Still, in constructing his argument, Kazin relies on one of the more dubious pieces of conventional wisdom of the past decade, namely the assumption that American companies that make real things are increasingly pass,. "In a society where the Dow Jones average is king, it's not surprising that cleverness trumps diligence," he writes, "and the glitter of instant wealth outshines achievements grounded in the manufacture of useful goods and the delivery of vital services."
Employing words like "useful" and "vital" as if their meanings were self-evident is, of course, a hallmark of producerist populism. Steel is useful, but Coca-Cola presumably isn't. But even if you set this dubious and arbitrary distinction between "useful" and "useless" aside, Kazin's argument is flawed. In the first place, a quick glance at the Fortune 500 shows that the largest and most profitable companies are almost entirely in manufacturing, oil, retail, and insurance, all of which are about as traditional a series of pursuits as one can imagine. More important, investors have not exactly ignored old-line businesses in favor of trendy virtual corporations. The list of the 50 largest American companies in terms of market capitalization is dominated by manufacturers, banks, telecom companies, and drug companies, with the occasional Microsoft and PepsiCo tossed in.
It is true, to be sure, that Internet stocks and tiny biotech companies garner an inordinate amount of press attention. And it's also true that manufacturers--most obviously, the auto companies--have to go to great lengths to convince the Street that they deserve higher price-to-earnings multiples than they're receiving. But it's equally true that the resurrection of America's industrial base--which once seemed on the verge of vanishing--has been instrumental in creating the conditions for this prolonged boom. One of the crucial differences between today and the 1980s, in fact, is that so many more companies seem to be creating "useful goods" or delivering "vital services" and are reaping the benefits from investors. It's not just that Andy Grove is less ostentatious than Donald Trump or Boone Pickens. It's also that Andy Grove and John Chambers of Cisco and Alfred Zeien of Gillette are, in fact, making things. It's undoubtedly true that too much paper wealth has been created in the last few years, and that eventually we'll come down to earth. But the foundation of the stock-market pyramid of the last few years is solid, and should last even after the boom ends.