Stock markets are places for investing money with the expectation that stock values will increase over time.  If the values increase, a person can withdraw their money from the stock markets at a later date and realize a substantial increase in wealth.  That increase in wealth is a share of the profits the companies listed on the stock markets are able to earn.  Those profits, in turn, are dependent on the total increase in wealth that the whole economy has produced.  Thus, the long term growth in stock market values depends on the long term growth of sharable real wealth. 

The historical trend in sharable real wealth growth is strongly related to the long term growth in the consumption of energy by humans.  It has also been strongly dependent on the ability of producers of wealth to discard waste cheaply and avoid paying for the damaging unintended consequences of expanding wealth production.  For sharable real wealth to continue to grow, both the energy trend must continue and the downside costs to producing wealth must continue to be cheap.  Energy production can certainly continue to expand, but the downside costs of using that energy to produce more sharable wealth are rapidly rising because managing climate change damage, resource depletion, ecosystem destruction, and popular anger is taking a bigger and bigger bite out of total wealth production.

If we are not already at the end of the era of expanding real wealth production in the world-economy, we are getting close.  As a result, the stock markets have or are about to enter a cul-de-sac from which there is no escape in the foreseeable future.  Middle class people around the world are making more and more demands on their governments to protect their wealth from extreme weather events, resource depletion, ecosystem destruction, and civil unrest, and to restore the wealth they have already lost to those destructive forces.  In these circumstances, company profits cannot grow as fast as they did in the past unless real wealth production increases more rapidly or the demands from middle class people are not met.  Accelerating wealth production also accelerates climate change, resource depletion, ecosystem destruction, and popular anger.  It rapidly adds to the costs of managing all the damage, especially popular anger (via policing and military spending).  On the other hand, assigning a greater share of the wealth being produced to meeting the demands of middle class people has to cut into the profits of the companies listed on the stock markets.  Down either path lies the stagnation of profits and the resulting stagnation of stock values. Down either path are real losses for the world’s middle classes.

Various governments are grappling with this stock market cul-de-sac by coupling an immediate reduction in middle class and working class standards of living with promises of great times yet to come.  In the U.S., the Trump administration is taking this short term fix to its extreme – inflicting immediate economic pain and possibly inducing a recession that will wipe out wealth for millions of middle class and near middle class families while calling the economic pain necessary medicine that will pay off handsomely for Americans. 

Much of the wealth loss is showing up, and will continue to show up, in the deteriorating wages, benefits, and conditions of work.  Attacking unions and reducing U.S. federal government jobs and programs is undercutting standards of work, workplace safety, wages, and benefits, all of which give companies more wiggle room for protecting profit rates for a while longer.  So does reducing taxes and regulations on corporations and the wealthy.  The Trump administration strategy may help corporations and investors avoid hitting the brick wall at the end of the stock market cul-de-sac for a few more years, but the collision is inevitable.