Why are Real Wages Stagnating and the Stock Markets Booming?

Explaining the “paradox” of falling real wages for workers and exponentially increasing wealth for investors.

Photo by irfan hakim on Unsplash

The news is full of how the Sensex, S&P, Dow Jones Index, and the Nikkei Index zooming to ever greater heights and breaking “records” every day. At the same time, the “real” economy is stagnating and the reports of farmer distress, worker angst, and the sufferings of the man/woman on the street are all too “visible”, even if mainstream media chooses to gloss over the latter and celebrate the former.

So, what explains this “disconnect” and “divergence” between the Stock Markets and the broader economy? Moreover, the returns from savings like Term Deposits (the favourite savings instrument of choice for the middle classes and more so, for the retirees) decline every year even as the Sensex “smashes” through “ceilings”, much like Thalaiva in the blockbusters).

This dichotomy can be explained by The Law of Diminishing Returns, which states that returns from investment begin to taper off after a while and diminish in value leading to marginal gains. So, when returns start to turn into trickles, why would any Entrepreneur or Industrialist invest in building factories, plants, and other tangible assets, which not only…