On the Soapbox

For much of this week, when the NBC Nightly News would talk about the economy, it would say something about how the Dow has hit "yet another record high" or something else along those lines, which is a bit annoying because...

1. The stock market is not necessarily a good indicator of overall economic health. Sometimes it is, but sometimes it is not. As the saying goes, there are lies, damned lies, and statistics. Another statistic (which is not necessarily any better), the GDP growth rate, has fallen down to 1.6%, which is the lowest since 2003.
2. Even if the stock market is a good indicator (I am not saying that it is not, but that people should be aware that it is can be an imperfect proxy), the Dow, with only 30 companies (and they are price-weighted, not capitalization-weighted, which is highly illogical) is not nearly as representative as, say, the S&P 500. But this Dow-vs-S&P thing is really a long-standing pet peeve of mine and is nothing new. By the way, the S&P 500 is still below its historic high.
3. Of course, point #2 is not that important because historically, the Dow and the S&P have had similar trendlines and are roughly correlated, and that trend, I suppose, is more important than the nominal value of the index. Speaking of nominal values, economists know to not take stock in nominal values of anything; in this case, the nominal value of the Dow does not account for inflation.

I do not have anything against the stock market and its role as one of the economic statistics, but for the mainstream media to hype up its role without providing any sort of meaningful context is irresponsible.