Saturday, March 12, 2005

Giving the Bum's Reich

Via Betsy Newmark and Polipundit the FLUBA Committee on Economic Poseurs is alerted to this USA Today article by former Clinton Administration Labor Sec'y, Robert B Reich:

My grandfather lost all of his savings in the Great Crash of 1929. He never trusted the stock market after that. But he kept working, and by the time he retired, he had a tiny nest egg. It still wasn't enough to retire on. He and my grandmother relied on the Social Security checks they got every month. Granddad died at the ripe old age of 91.

Given the penchant of certain other members of that Administration to...uh...shade the truth, let's think about this claim. We don't know just when Gramps was born, but since Reich informs us that his father is, today, himself, 91 years of age--hence, born in 1914--an educated guess would be 1890.

Which would put him in the labor force, say, in 1910 through 1955. If he had put a portion of his yearly income into a mutual fund that tracked the Dow Jones Industrial Average, each year on December 31st, he would have bought at the following prices:

1910: $ 81.36
1911: 81.68
1912: 87.87
1913: 78.78
1914: 54.58
1915: 99.15
1916: 95.00
1917: 74.38
1918: 82.20
1919: 107.23
1920: 71.95
1921: 81.10
1922: 98.73
1923: 95.52
1924: 120.51
1925: 156.66
1926: 157.20
1927: 202.40
1928: 300.00

Then comes, in Reich's words, 'the Great Crash of 1929', when, after reaching the dizzying $380 mark in August, the Dow begins to slide, hitting its low for the year in November at $198.69 (though it closes the year at $ 248.48).

Did Reich's grandfather, at this point, lose 'all his savings'?

When he lost his savings in the Great Crash, Granddad discovered that the stock market can be a giant casino.

Even if he'd panicked at the very worst day (Nov. 13, 29), and sold off his portfolio, he'd have had 17 out of 19 wins in the 'casino'.

Of course, as the Depression dragged on things got worse. The Dow began a long downward slide, eventually bottoming out on July 9, 1932, at $ 41.22. But a year later, it was back over $100, and closed every year thereafter above that (even after Pearl Harbor it ended the year at $110.96). Giving Grandad 13 out of 19 positive pre-Great-Crash rolls of the dice.

And that says nothing about the dividends he would have earned from his ownership of those stocks. But what kind of future would have awaited him in 1955, when he retired, had he held onto his investments all those years:

December 31, 1955, the Dow closed at: $ 488.40. At our guesstimate of his death in 1981, it closed mid-year at $ 967.66.

We note, not knowing whether to laugh or cry:

Robert B. Reich, 58, former secretary of Labor in the Clinton administration, is professor of social and economic policy at Brandeis University. His most recent book, Reason, was issued in paperback this month.

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