Dear Leader Barack Hussein Obama supporters proudly point to the increased Dow Jones Industrial Average (DJIA) as an indicator of how his economic policies have succeeded.   It had a high value in 2008, of 13,044.  The 2012 DJIA high was 13,610, representing a 4.3% gain.  But, as Paul Harvey used to say, "this is the rest of the story."

The DJIA is an index of thirty stock prices, but the thirty stocks are subject to change and manipulation.  Manipulation?  How?  There are three factors at work here: (1) the stocks picked, (2) the nature of the DJIA and how its value is calculated, and (3) its makeup.

First, the editors of the Wall Street Journal (WSJ), owned by Dow Jones & Co, pick the stocks constituting the DJIA.  There are currently fifteen editors, all people who are, just like us, bombarded daily with political propaganda.  It's interesting to note that nine of them received their undergraduate education from northeast colleges, and two others graduated from liberal bastions.  Did any of that liberal influence rub off on them?  They must know why they selected the thirty stocks, but they aren't sharing.

Second, the DJIA is a stock price-weighted index.  For a price-weighted index, the index value is obtained by adding the prices of each of the stocks in the index and dividing them by the total number of stocks, the divisor.  That means that higher-priced stocks have greater influence on the DJIA value than lower-priced stocks.  Higher stock prices equate to higher DJIA values.  Also, stock splits affect the divisor.  More stock shares means that the divisor is adjusted to reflect the increase in shares.

Let's be specific.  Hewlett-Packard, Bank of America, and Alcoa were replaced this month by Goldman Sachs, Nike, and Visa, yielding a resulting stock price increase of $371.  A divisor adjustment meant that the DJIA value did not change when the new stocks were included.  But...a 10% increase in stock share prices for the replaced companies would have resulted in a 33.8-point increase in the DJIA.  A 10% increase in stock share prices for the new companies would result in a 268.4-point increase in the DJIA, or a 794%-greater point change.  That calculation assumes that all twenty-seven other stock prices remain unchanged. 

The DJIA divisor supposedly ensures that the new DJIA value with the new stocks is the same as the old DJIA value with the old stocks, but the effect is (at best) temporary.  The profits (and therefore) prices of the new stocks will be greater than the old stocks that they replaced, resulting in a higher DJIA value.

As you can see, the DJIA index value is arbitrarily defined by the stocks represented.  So, just like the unemployment rate, the DJIA value can be manipulated.  Critics question the value of the DJIA as indicative of how well the U.S. economy is doing.

Third, the DJIA is (as of August, 2013) composed of only 21.95% industrial stocks.  The stocks are "supposed" to represent the U.S. economy.  The question is, do they?  The DJIA does not have any utilities stocks in it.  Nor is stock selection governed by any quantitative rules.  I used to teach indexes in college, and the first thing I would tell students was to carefully examine the composition of the index to see if it represents the situation it's used in.

As Wim Grommen, Nederland economist, says, "[t]he number of points [of the DJIA] says absolutely nothing about the state of a society.  You had better look at the number of people in society who use food stamps.  That is the real truth."

To say that Obama's first term as president was a disaster would be a gross understatement.  How can I say this?  Consider the table below.  I'm reminded of what Al Gore said in 1992: "Everything that ought to be down is up.  Everything that should be up is down."

So, without further ado, here is Obama's real economic record, starting in 2008, when he was a candidate, and ending in 2012, when he was re-elected.  Plus he blamed Bush for the 2008 economic situation he says he inherited.

Obama, in 2009, said, "I love these folks who helped get us in this mess, and then suddenly say, 'Well, this is Obama's economy.  That's fine.  Give it to me!"  Two weeks later, he said, "I don't want the folks who created the mess to do a lot of talking.  I want them just to get out of the way so we can clean up the mess.  I don't mind cleaning up after them, but don't do a lot of talking."  OK, Obama, it's your economy.  But it sure looks like you didn't "clean up the mess."  It looks as if you have made the mess worse.

The DJIA may be up, but it doesn't tell the complete story.  And still Obama was re-elected in November 2012.

Dr. Warren Beatty (not the liberal actor) earned a Ph.D. in quantitative management and statistics from Florida State University.  He was a (very conservative) professor of quantitative management specializing in using statistics to assist/support decision-making.  He has been a consultant to many small businesses and is now retired.  Dr. Beatty is a veteran who served in the U.S. Army for 22 years.  He blogs at rwno.limewebs.com.