Re: Oz and the American Dream

[James Devine <jdevine@xxxxxxxxxxxxxxx>]

At 08:58 PM 5/1/98 +1000, Rob wrote:
>Hale tells us the US Fed's model for valuing stock has Wall Street
>somewhere between 10 and 20% over the odds.  At current rates of euphoric
>appreciation, that figure could be between 30 and 40% by Christmas.  By
>then, he reckons, any correction might better be termed a crash (is he
>telling Greenspan to hit the interest rate button now, I'm thinking ... ).

Ex-Fedster and economist Alan Blinder was interviewed on US NPR yesterday
and had some interesting things to say about this (in the fragments I heard
-- is it possible to get a transcript on-line?). He said that in addition
to the "irrational exuberance" of the stock market (Greenspan's phrase),
there's also a "rational exuberance." This seems to be based, among other
things, on the high profit rates now being enjoyed. If so, the underlying
stability or instability of the profit rate's current performance should be
examined. I say that the current profit rate is unsustainable, given the
political economy of 1998 (it would have been sustainable in 1968).

Further, he noted that Fed efforts to "prick the bubble" have necessarily
unpredictable results, as when one pops a balloon. I guess that's why the
Fed wants to do it by floating rumors rather than actually raising interest
rates (so far).

If my understanding is correct, it's quite possible that underlying
instability of the profit rate (the US version of a "bubble economy") means
that efforts by the Fed to prevent or end irrational exuberance could
undermine the rational basis of exuberance.

in pen-l solidarity,

Jim Devine jdevine@xxxxxxxxxxxxxxx &
http://clawww.lmu.edu/Departments/ECON/jdevine.html
"The only trouble with capitalism is capitalists. They're too damned
greedy." -- Herbert Hoover