The monetary world has changed mightily while fashions have changed. Hemlines go up and down, jeans from skinny to boxy. The money…
There was once something called the Hemline Index introduced by economist George Taylor in 1926. The idea was that the hemline of women’s skirts signed where the economy and/or the stock market were headed. Short skirts meant good times; a falling economy was signaled by longer hemlines.
Marjolein van Baardwijk and Philip Hans Franses explored what they refer to as an urban legend in a 2010 paper, “The Hemline and the Economy: Is There Any Match?” The two authors collected hemline data from 1921 to 2009, matching hemlines with National Bureau of Economic Research (NBER) business cycle data.
Given that fashion creation and popularity take time, the authors applied a lag and and came to the conclusion in their short paper: “Supporting the urban legend, we find that poor economic times make the hemlines to decrease, which means that women’s dresses get lower, and that prosperity is correlated with a reduced hemline (more miniskirts). At the same time, and this is new to the available evidence, we find that there is a time lag of around three years.”
They pronounced, “This explains why at present , in an economic downturn, the skirts are short, as this is simply due to the fact that the economy was in a boom about three years ago (2007–2008).”
Others, Robert Prechter, Paul Montgomery, and Ralph Rotnem, have used Taylor’s theory in predicting stock market movements.
The disconnect between the stock market and the economy has created a conundrum, is it hemlines or is it jeans style? Going into the covid crash, skinny jeans were all the rage; now, according to the Washington Post, “the fashionistas are going for ‘the mom’ and the flare.”
Of course, skinny jeans aren’t completely dead; for instance, songwriter Sarah Hester Ross recently wrote the lyrics, “You can pry these skinny jeans from my cold dead a**, ya hear?” Yes, fighting words in what Maura Judkis and Abha Bhattarai call “The Jean War.”
Judkis and Bhattarai pose this war as between millennials and Gen Z. Millennials have reached a ripe old age between 25 and 40, while Gen Zers age from 9 to 24. However, boomers and Gen Xers have a dog in this denim fight as well.
Gen Z is telling millennials, Your skinny jeans ain’t too cool. They’ve discovered “jeans [with] wider legs and tapered ankles, or maybe they flare out with a little kick. They have lighter washes and high waists.” Or, as Judkis and Bhattarai make clear, “mom jeans.” And, “[n]aturally, this means war.”
I like any jeans that fit on my lockdown-bloated bottom. But, what does it mean for markets or the economy? Intuitively, I would think boxy, high-waisted mom jeans equate to lowered hemlines, meaning that stocks are headed lower and the economy remains in a funk, with the Fed keeping its foot fully on the money supply accelerator.
Meanwhile, skinny jeans, to my mind, equals miniskirts, with a roaring economy and stock market. Robert Prechter wrote in “The Socionomic Theory of Finance” that “mini skirts dominated fashion again near the market peak when in 2007 a headline advised, ‘The Mini-Skirt is Back, So Get Those Legs in Shape.’”
Prior to that, miniskirts became popular in the 1990s for the first time since the 1960s. Prior to that, miniskirts were the craze in the Roaring Twenties, until the market crash of 1929.
Judkis and Bhattarai wonderfully remind us that the term “mom jeans” first appeared “[i]n 2003, from a fictional ad on ‘Saturday Night Live’ starring Tina Fey, Rachel Dratch, Maya Rudolph and Amy Poehler. It showed the four women wearing dumpy, boxy jeans that made their midsections look lumpy. The voice-over: ‘Give her something that says: I’m not a woman anymore. I’m a mom.’”
As a reminder, in 2003, the stock market was still licking its wounds from the 2001 crash. “Mom jeans flatter almost no one,” wrote Jill Hudson Neal in The Post in 2006. “Though they were ostensibly designed to compliment a real woman’s fuller figure, the reality is that most of them make an average wearer’s behind, hips and stomach look … well, big.”
Then as millennials recoiled at the thought of being stuck in mom jeans, and shimmied into skinny ones, the housing and stock markets roared toward a peak, before it all fell apart in 2008.
Millennials not-so-fondly remembered, “The jeans of their youth were flared at the ankle, tight on the waist and, in some cases, rode low on their hips (giving rise to ‘muffin top,’ an odious term from 2003 describing, as New York Times language columnist William Safire put it, ‘three to six inches of stomach bulging out below a short blouse and above hip-clinging “low-rise” jeans’).”
Who knew Bill Safire weighed in on such things?
The monetary world has changed mightily while fashions have changed. Hemlines go up and down, jeans from skinny to boxy. The money supply only marches in one direction, upward.
In March of 1961 the M2 money supply stood at $318.3 billion. Fifty years later, March 2021, M2 clocked in at $19,896.2 billion (better put, $19.9 trillion). That’s an annual increase, according to miniwebtool.com, of 123.0154 percent. Most of that growth began in 2001, with a recent sharp spike this year. You may be wondering about broader money supply numbers once captured in M3. Unfortunately, the Fed has discontinued that series.
Try slipping that on comfortably.
Douglas French is former president of the Mises Institute, author of Early Speculative Bubbles & Increases in the Money Supply, and author of Walk Away: The Rise and Fall of the Home-Ownership Myth. He received his master’s degree in economics from UNLV, studying under both Professor Murray Rothbard and Professor Hans-Hermann Hoppe.