Leave it to "Doonesbury" to catch the shifting reflection of the Dow Jones industrial average on the American economy and culture.

In a 1971 edition of the comic strip, stockbroker Phil Slackmeyer nearly keels over when radical son Mark kiddingly announces the Dow fell 65 points. Back then stockbrokers were oppressive capitalists, making fun of the Dow was cool, and 65 points was a lot.

These days stockbrokers are cool, and the Dow is serious. Strip hero Mike Doonesbury is a capitalist himself, burning through stacks of cash at his start-up company while trying to ride the Internet stock wave.

And with the Dow closing yesterday at 10,006.78 -- more than 9,100 above its 1971 territory -- 65 points is an ounce in an ocean, barely enough to attract notice.

"I'm just amazed," said Charles McMillion, a Washington economist who started paying attention to stocks a quarter-century ago, when the Dow was around 800. "The trillions of dollars that this has added to the paper assets of households is just incalculable for the effect it has on the economy, on the culture."

Economists have known for years that stock values rise over time, handily beating bonds, gold, real estate and other investments over long periods. But back in the Dow dog days of the 1970s and early 1980s, it's a good bet that none would have predicted a tenfold Dow increase in less than two decades.

The Dow has been a financial totem for more than a century. It was invented in 1884, a micro-world of 30 stocks intended to yield information about a larger universe. The 30 stocks have changed over the years. Dow symbolism hasn't.

It was 1982 when the Dow woke from a snooze that had lasted since the Johnson administration. Inflation, oil shortages and slow growth had chained the Dow in the 1,000-point level. But the economy was starting to perk up, and investors were wondering if General Electric, say, wasn't worth more than its $66-per-share price at the time.

Ronald Reagan was in the White House, cutting taxes and bringing on defense spending. Baby boomers were entering their prime consumption years, inflation and interest rates were finally subsiding, and the economy started to grow again.

The Dow took off, rising from 777 on Aug. 12 to a record 1,071 two days after Christmas. Then it kept going, breaching 1,250 in October 1983 and 1,500 by the end of 1985. This was prime time in the Reagan economic expansion, and Wall Street financiers were starting to use mounds of borrowed money to buy and reorganize huge companies and resell them at a profit.

These "leveraged buyouts" drove the Dow for two more years -- to the giddy height of 2,722 in the summer of 1987.

Then came the crash.

That October the Dow fell 508 points in a day, briefly touching 1,739 as stocks were deflated by worries about world trade, interest rates and Dow vertigo. For a while, analysts predicted recession or even depression, recalling how the 1929 stock crash seemed to kill the U.S. economy.

The Dow, however, proved irrepressible.

It blew through 3,000 in 1991, 4,000 and 5,000 in 1995, 6,000 in 1996 and 7,000 and 8,000 in 1997.

Something was different this time, analysts were starting to concede. Corporate earnings grew at a robust pace, as downsizing, automation and its resulting productivity yielded their effects. At the same time, baby boomers saving for retirement were shoveling money into stocks.

"If you have had an employer make tax-free contributions to a retirement plan, then you've probably got a pretty good bundle of assets, even if you're not in a high earnings category in the overall scheme," said Robert Frank, a Cornell University professor whose new book, "Luxury Fever," analyzes the pecuniary greening of America. "There are a lot of people besides the very rich who have significant equity holdings."

Mutual funds proliferated and grew like bamboo in the rain forest. Not only were people buying stocks because it seemed a responsible way to finance their golden years. They were buying stocks because the Dow had already doubled and doubled again. Surely there was more to come.

Lately, international economic turmoil has actually helped U.S. stocks, not hurt them, as foreign investors train money on one of the globe's few stable economies. "You've got a lot of money moving around the world. Big amounts of money," said Louis Galambos, professor at the Johns Hopkins University and a specialist in economic history. "The United States has become a safe haven. What that suggests is, we may be vulnerable in new ways" if conditions deteriorate.

Today, the Dow and what it represents has transformed society in ways obvious and subtle. Dripping household stock wealth has fueled a consumer spending boom, as families feel they can afford more goods and trips. The spending boom, in turn, helps propel stocks even higher.

"It's no coincidence that consumer confidence is at a record high at the same time the stock market is at a record high," said Mark Zandi, an economist with Regional Financial Associates in West Chester, Pa. "It's significantly juicing up the economy."

Zandi figures booming stocks increased U.S. economic growth last year by nearly two-thirds. The country's output grew by 4 percent in 1998; without the bull market growth would have only been 2.5 percent, he estimated.

At the same time, high stocks mean cheap financing for corporations. Because it's so easy for businesses to sell stock and raise money, "they're using the proceeds for expansion, hiring and investment," Zandi said.

That stimulates the economy even more, and it sets the table for future earnings and productivity gains.

The bull market has also played a role in balancing federal and state government budgets. Billions of dollars are rolling into government treasuries in the form of capital gains taxes, as investors cash in their stock gains.

"Unless we get, actually do get a recession starting pretty shortly, my guess is that the [budget] surpluses are probably underestimated," said Gary Robbins, an economist with the Institute for Policy Innovation, a think tank that tracks fiscal issues. "These good surprises can be followed very well by bad surprises, but so far there's not much you can grab onto to support that kind of forecast."

But perhaps the most significant effect of Dow 10,000 is the way the stock market has suffused society. After World War II, fewer than 5 percent of U.S. households owned corporate shares. Now it's 40 percent -- and even higher by some estimates.

The Dow seemed ascendant in the 1980s, "but I don't think in the '80s that the Dow Jones was on any sports scoreboards," said McMillion. "There are a few baseball and football scoreboards now that have the Dow on them. Honest to God. It just colors everything."

Meanwhile, $66 in Dow member General Electric stock bought in 1982 yesterday was worth $1,848. And that doesn't count even more paid out in dividends over 17 years.

Pub Date: 3/30/99