As stocks slip, slide away, what happens to economy?

With the Dow Jones Industrial Average closing just above 9,500 Friday, investors -- who may well feel as if they've spent too much time on one of Cedar Point's fastest -- may be happy for a weekend's respite. The market's roller-coaster ride of the past year with the Dow dropping from a high of 11,310 to Thursday's low of 9,389 is a sharp reminder that stocks are an investment with some risk.
The Dow's loss of 1,900 points this year should also prompt some rethinking among those who have been pushing the privatization of Social Security. We wonder how many investors who were agitating for control over all their retirement funds, presumably so they could invest them in high-yielding securities, are quite so eager now.
That nice, secure and financially boring Social Security plan should be looking a lot more appealing right now.
The independent behavior of the markets has also provided a number of economics lessons.
Not the Fed's job: First off should be the recognition that monetary policy, as determined by the Federal Reserve Bank Board --most often personified by Chairman Alan Greenspan -- is not the sole determinant of the nation's economic health. Nor should it be. The Fed worries about the nation's money supply, not whether individual investors lose their shirts or make a bundle. Thus, even when the Fed lowered the prime interest rate by 0.5 percent, a hefty cut, some investors panicked because the cut wasn't as large as they had expected.
While the Fed watches how much money is available, the federal government is responsible for fiscal policy -- balancing taxation and spending in a way that should maintain economic stability. That's why tax cuts can't be made arbitrarily -- especially when the nation has a $5.3 trillion debt.
We've all been told that "it's our money." We have to remember that it's also our debt. That's why we still believe that the best way to improve the economy in the long run -- as opposed to quick and dubious fixes -- is to reduce the national debt, which would reduce government spending and free up money in the credit markets for private investment.
Cycles: Most economists believe that the behavior of stock markets is cyclical. They go up and they go down. Unfortunately for many Americans the exuberance of the rising market of the last few years overshadowed any realization that what was going up would ultimately come down. Those who counted on an ever-inflating bubble have been stunned to see it shrink -- along with their net worth. And no one can predict the duration and size of the shrinkage, any more than they could discern the extent and time frame for the expansion.
The wise investor waits out the wild ride, knowing that the U.S. economy is still healthy. It's just taking a breather.