Reverse Robin-Hooding

As we see the Senate and the House pass a tax bill that every economic analyst agrees is horrible, most of us concede that the American Dream is officially dead.  Businesses that were once staples of our middle class (Sears, Toys R Us) are declaring bankruptcy and shuttering their stores.  Alabama is being investigated by the U.N. for levels of bone-crushing poverty not seen outside most third-world nations.  And about 80% of our nation is struggling to afford just to live.
But not all the news is bad.  After all, the Dow Jones Industrial Average keeps going up, right?  It's got to be better than it was in 2007?
Yeah, not really.  We've had all kinds of explanations for stock increases during flat economic times.  From "stagflation" in the 1970s to our most recent "jobless recovery," we're increasingly measuring economic success by one rubric, and it's the wrong one.  The stock market is not an accurate reflection of our economy's health.
Let's look at what the stock market is.  Businesses need money to operate.  Some of that money comes from revenue.  Most of it, however, comes from loans and equity financing.  Loans are easy enough to understand.  Most of us have borrowed money at some point in our lives.  For equity financing, the company sells off little pieces of its ownership.  Those pieces are called "stock."  Currently, stocks are traded in two markets--The New York Stock Exchange, founded in 1817, and NASDAQ, founded in 1971.  (Fun fact: One of the founders of NASDAQ was Bernie Madoff.  Yes, that Bernie Madoff.)  The owners of stock certificates are owners of the company.  They share in decision making (like voting in a board of directors) and they share in the profits.  These profits, called dividends, are paid out quarterly per share.
So much for Economics 101.  How does this play out in practice?  Let's look at an American corporation.  United Health Care is a company that sells health insurance.  In 2016, according to their annual report, the company earned about $184 million in revenue.  That sounds like a lot, except that their stock sales for that same year were over $132 billion!  Now, if you were United Health Care, who would be your top priority?  Your clients, or your shareholders?
We saw this play out to an even greater extreme in the 1990s and early 2000s, with the "tech bubble."  Companies like Yahoo were selling stocks at high prices without having any saleable product at all.  Stock prices do not necessarily reflect revenue.   They reflect how well a particular stock is selling at a given time. 
Most of the people buying stock are in the "investor class"--their sole interest is in getting the most out of their stocks as possible.  Whether that comes from dividends or from the "buy-low, sell-high" ethos of the market, they want to make money.  And, as companies see a significant portion of their equity tied to stock prices, pleasing shareholders becomes more important than product quality.  So, the only thing that matters is the bottom line.  Whether it's moving plants to countries with lower wages and no regulations, cutting staff, or trimming benefits, companies want to increase revenue to please shareholders.  And, if their employees can no longer afford their products, oh well!  They still have their stocks to bring in money.  Who cares about sales revenue when stock equity makes up a great percentage of overall equity?
But it doesn't last.  As history has shown, we've had depressions, stagflations, recessions, and periods of high unemployment.  Currently, we see the Dow rise while more and more Americans face economic instability.  We cannot keep this up.  Eventually, we will crash again.