Twitter, the Economy and the Roaring ‘20s
Philosopher Zack Fox once said, “Pull back the curtain on capitalism, man. What do you see back there?” Indeed, the question of what drives the economy has been hotly debated since time immemorial. However, what both the Roaring ’20s and 2021 have taught us is that the question itself is flawed. It is not about what is driving the economy, it is about who.
To understand the parallels between the Roaring ’20s and 2021, one must understand what drove the massive expansion of the stock market in the 1920s that preceded the Great Depression. The Dow Jones Industrial Average reached more than 381 points before the Crash of 1929, but why?
There are two main factors: the rise of credit-based purchases and the manipulation of the market. Credit-based purchases are not a new idea today, but they were a radically new idea in postwar America, and the basis upon which the market expanded rapidly. Even the average, working class American had money in the stock market: paying 10–20% of the price of the stock and taking loans from brokers to pay for the rest. This can be understood as a democratization of the market — everyone could invest in it with an ostensibly equal chance of striking gold — and everyone did.
However, what was perceived as an equal chance was actually the product of manipulation by stockbrokers, operators and those who made their millions in the market. Practices like “painting the tape,” in which operators traded certain stocks amongst themselves to artificially boost their price, or the usage of “pools” to inflate stock prices and thus increase their profitability when sold, were not uncommon. However, there was one practice invented by Charles Mitchell of the National City Bank that bears a concerning resemblance to today: the idea of mass-marketing stocks to amateur investors, of which there were innumerable. Often through bribes, or in the guise of advice from a proclaimed expert, certain stocks were highly publicized and thus saw a spike in activity — driving the price up and thus attracting even more investors, keeping the cycle in motion.
The aforementioned “democratization” of the market was thus a misnomer. However, it bears marked similarity to the modern world, not just in relation to the idea of the 1%, but in relation to social media and cryptocurrency. As the past weeks showed, the endorsement and/or condemnation of bitcoin by billionaires like Elon Musk apparently triggered massive fluctuations in its value. Musk opined that Bitcoin was overvalued in a tweet on February 19th, and its value dropped by nearly 10%. He posted a picture of Dogecoin and the price quadrupled afterwards over a 5 hour period. It would appear that the advent of social media has given people like Musk an audience, and the average social media denizen easy access to advice from multiple sources on good investments, including advice from billionaires.
The rise of apps like Robinhood, which allows stock trading for free, likely contributed to this perceived democratization. In addition, the new popularity r/wallstreetbets has enjoyed in its GameStop saga has likely brought new focus to the stock market as a chance to get rich quick. Overall: advice on investments and the means to invest have become accessible to everyone with an Internet connection.
This new accessibility and the apparent ability of ultra-rich figures like Musk to direct cryptocurrency activity make the possibility of a new-age Charles Mitchell, one who could utilize their social media platform to drive up the price of certain stocks as was seen in the GameStop saga, both very real and very concerning. This certainly poses a problem to the stock market, but what of cryptocurrency? Bitcoin is decentralized and deregulated, but can it remain that way if people intentionally use their platforms to drive its price? Should it?
Clearly, the meteoric rise of social media has impacted every level of life, and has left more questions than answers.
