Paul Krugman JULY 15, Stocks are even more susceptible than other markets to popular delusions and the madness of crowds, and stock prices generally have a lot less to do with the state of the economy or its future prospects than many people believe. The fact that the major averages have lately been hitting new highs — the Dow has risen percent from its low point in March — is newsworthy and noteworthy.

What are those Wall Street indexes telling us? And understanding how that works may help us make sense of the troubling state our economy is in. Strange to say, however, we began hearing that line a lot less once stock prices turned around and began their huge surge — which started just six weeks after President Obama was inaugurated.

The truth, in any case, is that there are three big points of slippage between stock prices and the success of the economy in general. First, stock prices reflect profits, not overall incomes. Second, they also reflect the availability of other investment opportunities — or the lack thereof. Every weekday, get thought-provoking commentary from Op-Ed columnists, the Times editorial board and contributing writers from around the world.

View all New York Times newsletters. On the first point: On the second point: And these days those options are pretty poor, with interest rates on long-term government bonds not only very low by historical standards but zero or negative once you adjust for inflation. So investors are willing to pay a lot for future income, hence high stock prices for any given level of profits. But why are long-term interest rates so low?

Market blues stock book I argued in my last columnthe answer is basically weakness in investment spending, despite low short-term interest rates, which suggests that those rates will have to stay low for a long time.

This may seem, however, to present a paradox. Instead, profits come from some market blues stock book of market power — brand position, the advantages of an established how much energy does a solar panel produce in kwh, or good old-fashioned monopoly.

And companies making profits from such power can simultaneously have high stock prices and little reason to spend. Consider the fact that the three most valuable companies in America are Apple, Google and Microsoft. None of the stock market historical performance chart spends large sums on bricks and mortar.

In fact, all three are sitting on huge reserves of cash. So when you read headlines about stock prices, remember: Read my blog, The Conscience of a Liberalequity volatility skew risk follow me on Twitter, PaulKrugman.

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