On this day in economic and business history…

Is the prestige really worth a place on the Dow Jones Industrial Average ? Let’s ask Pfizer , Verizon , and American International Group , which all joined the Dow on April 8, 2004. AIG shareholders are lucky to even have the chance to ask, as the insurance giant received the lion’s share of the 2008 and 2009 government bailouts during the financial crisis. That knowledge should prepare you for the sobering results of these companies’ Dow performance:

• Dow nine-year return (2004 to 2013): 39%
• Pfizer nine-year total return: 19%
• Verizon nine-year total return: 130%
• AIG total membership return (company was removed in September 2008): -93%

It was only after the Dow swapped AIG out in 2008 that Verizon began to outperform. Up until AIG‘s removal, the index and the telecom company were neck and neck with respective gains of 5% and 8%. However, the swap was not a total loss. Kodak, one of the removed components, would go bankrupt in early 2012. Still, it doesn’t speak well for the Dow’s track record of new additions in the last several decades. One has only to look back at one horrendously bad swap at the height of the dot-com bubble to see the wisdom in standing pat.

Pfizer, the “respectable” underperformer of the group, failed to impress the market despite three megamergers since the turn of the 21st century. However, the most recent merger — with fellow pharmaceutical giant Wyeth in 2009 — turned Pfizer’s fortunes around. Since that merger was announced, Pfizer’s return has trounced the Dow’s, 95% to 60%. Perhaps what the index needs is more time to prove the value of its choices over the companies that were replaced.

FDR’s grand plan
President Franklin D. Roosevelt signed the Emergency Relief Appropriation Act into law on April 8, 1935. The cornerstone of this legislation was the ambitious Works Progress Administration, which superseded the Civil Works Administration that had done so much to build and rebuild the national infrastructure since its formation in late 1933. For its first year, the WPA was allocated nearly $5 billion, which at the time was almost 7% of GDP. Over the course of its existence, the WPA spent more than $13 billion. Wired‘s Tony Long writes on the opposition to, and outcome of, this massive project:

Roosevelt’s detractors, who spoke of “New Dealers” and “socialists” in the same breath, liked to characterize the WPA as a politically corrupt pork barrel where legions of layabouts leaned on their shovels while getting paid for it. But the project not only got about 8.5 million people off the dole, it yielded tangible results. During an eight-year run, WPA workers built or repaired 124,000 bridges, 650,000 miles of highway, 125,000 public buildings, 8,000 parks and 850 airfields.

More than $4 billion went to road improvement projects. More than $1 billion each went toward …read more

Source: FULL ARTICLE at DailyFinance