What the stock market surge is hiding

On Wednesday, the Dow Jones Industrial Average reached 22,000 points for the first time ever. Unfortunately, this bright spot might not be quite as bright as it appears.

Across multiple indexes, the stock market has been doing quite well as of late. But the good fortune isn't uniformly spread across the economy. It's actually relatively concentrated — mainly in Silicon Valley and the tech sector.

For example, Apple — already the world's biggest company by stock market capitalization — powered much of the Dow's latest rise, helped along by anticipation of a new iPhone release. Meanwhile, the five biggest companies in the S&P 500 — Apple, Alphabet (Google's corporate parent), Microsoft, Amazon, and Facebook — account for 12 to 13 percent of the index all by themselves. Those are the stocks that are doing much of the climbing.

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Meanwhile larger swaths of the index flounder. "To date, the S&P 500 index is trading well above its 200-day moving average," CNBC reported in April. "But about 120 to 130 stocks in the index are actually trading below that moving-day average. So, those five above-mentioned stocks are doing a lot of the heavy lifting." Sectors that are particularly struggling to carry their weight in the stock market are real estate, telecommunications, finance, and energy. In their own way, the first four's problems probably reflect lingering damage from the Great Recession, while the energy sector has been bedeviled by the global oil glut.

As for why tech is enjoying its disproportionate good fortune, there are a few different possible explanations.

Let's start with the most optimistic theory: that the tech sector's outsized revenues and profits are totally justified, and it's just unusually good at creating value compared to the rest of the economy.

Even if true, it is still not necessarily a good thing. Over the last few decades, America's economic geography has shifted dramatically. It used to be that recoveries from recessions were powered by widespread job and business creation, across urban and rural communities alike. But now nearly all the action is exclusively found in big cities. Outside these urban enclaves, economic life has rotted and died. That's created all sorts of perverse side effects, particularly spiking housing prices in big cities, which in turn prevent huge numbers of Americans from being able to afford access to economic opportunity.

Under the optimistic theory, this isn't the fault of Silicon Valley. Tech just happens to be the new urban creative industry par excellence, so it's been the beneficiary of this shift. But that doesn't change the fact that the shift has had profoundly destructive consequences for workers and communities across the country, leading to a lot of toxic social and political upheaval. (See: the current occupant of the White House.)

Now, the tech sector's biggest fans might argue that we should live with this change rather than try to fight it. The government interventions in the economy we'd need to reverse the economy's evolution, like tax-and-transfer policies and anti-monopoly enforcement, might inadvertently damage Silicon Valley's productivity. But tech's success has not translated into a higher overall rate of productivity growth in the U.S. economy, which remains shockingly low.

Furthermore, corporate America is sitting on absolutely stupendous cash reserves: $1.84 trillion. And tech makes up an outsized portion of that supply. Apple alone has $246 billion. So the industry can afford to be on the losing end of a lot of redistribution without cramping its style.

But there's a less optimistic story we could tell, too.

In this narrative, Silicon Valley isn't an innocent bystander, but has actively enriched itself by exploiting the rest of the economy.

Observers across the economy are becoming increasingly concerned about a phenomenon called "rent-seeking." That's when a company achieves higher revenues and profits not by adding new value to the economy, but by extracting money from customers, workers, and other businesses through overwhelming market leverage. If a company achieves enough dominance in a particular market segment, or if it gains power over a particular technological bottleneck, it can set terms: Prices in the market cease to be a function of competition and productivity and become a function of whatever the ruling company wants them to be.

Facebook and Google, for example, are essentially platform operations: They provide the infrastructure through which social networking and internet searches are done, respectively. And they dominate almost all the activity in those areas. This gives them almost total control of the information that flows through those activities, and what companies can and can't break into them. They also suck up huge portions of all ad revenue, squashing potential competitors.

Businesses like Microsoft, Amazon, and Apple, meanwhile, enjoy enormous sway over their particular segments of the market. They pursue aggressive policies to undercut competitors rather than out-compete them, and have embraced vertical integration — a monopolization practice that older and wiser eras of antitrust enforcement outlawed outright.

Beyond that, the tech sector is also an outsized beneficiary of intellectual property law when it comes to things like software. While the idea of intellectual property can be reasonable in theory, in practice it's grown massive and sclerotic, allowing companies with legal rights to essentially sit on good ideas forever, demanding payments from everyone else who might use them without having to lift a finger.

So this is a far darker tale, one where the tech industry didn't just happen to be in the right place at the right time to benefit from the great shift in the economy, but where it actively pushed the change — bleeding the rest of the economy of wealth and resources, while contributing far less than the Silicon Valley mythos suggests.

But the broader point is that, regardless of which interpretation is right, both should scare us — and spur profound reforms of our society and economy.

The stock market is often treated as a catch-all metric for the health of the economy. But what it actually measures are the hopes and expectations of the relatively small and wealthy slice of the population that does most of the stock-owning and stock-trading. Job creation, wage growth for the working class, and the economic health of communities and families across the country — these play only the most tangential of roles in what drives stock indexes up and down.

So even when the stock market shatters all-time records, it's not always something to celebrate.