RE: Asking for help (again) for my thesis

[Clifford Poirot <cpoirot@xxxxxxxxxxx>]

See a few comments/suggestions below

> -----Original Message-----
> From:	Olivier Giovannoni [SMTP:frencholivier@xxxxxxxxxxx]
> Sent:	Sunday, March 12, 2000 3:03 PM
> To:	POST-KEYNESIAN THOUGHT
> Subject:	Asking for help (again) for my thesis
>
> Hi everybody
>
> I'm currently conducting some research in France about the links between
> the stock market and the real US economy, that is primarily
> (un)employment.
> I'm currently hesitating between two options (but hardly prefer the first
> one):
>
> 1-- More and more there seems to appear the following idea in my head,
> according to which the rise of the Dow creates a wealth effect and people
> are tempted to comsume more. Increasing Consumption and Deamnd seems
> therefore to be the link between the stock and GDP growth, therefore
> employment growth.
	[Clifford Poirot]
	I think that most keynesians would look somewhat skeptically at this
proposition. First, it is not clear that people do spend on the basis of
"real balances". Notably, Keynes critiqued this idea, focusing instead on
propensities. You might want to take a look at the work on the consumption
function since Keynes, if you are sure this is the direction you want to
take. You should also reference Pigou.
>
> 2-- But on the other hand, the stock market should *ideally* rise with
> productivity, I mean LABOR productivity since capital productivity growth
> is somewhat constant over time and since the labor prod already takes
> account of its evolution. In this scheme, the stock market should reflect
> changes in labor productivity, and therefore the Dow and employment should
> move in opposite directions, which is non-sense according to the facts...
	[Clifford Poirot]
	You should reference the discussions on this list about the
efficient market hypothesis. This assertion can only hold true if you
believe that stock prices are really determined by earnings, and that
current values of the stock market really and truly reflect all relevant
information about productivity. You might take a look at some of the PK
literature on unemployment and the role of the business cycles as a means of
disciplining workers.

	Here is a suggestion. Let's say that an increase in labor
productivity leads to an increase in corporate profits and hence an increase
in investment demand. The increase in spending leads to increasing GDP, and
a decrease in unemployment. At this phase of the business cycle, increases
in equity prices would have a pretty strong correlation with the increase in
labor productivity. As the expansion heats up, workers demand (or central
bankers fear they will demand) increases in wages. At this point, markets
respond to the fear of increased inflationary pressures and/or restrictive
policies by the Fed. This makes the market extremely volatile at the top. If
a recession comes, productivity could still be increasing, but equity prices
are likely to fall.
>
> And also, what does the recent stock surge mean to you ? Is it just an
> "animal spirits boom" or a real shift in the way economics are and
> therefore should be understood ?
	[Clifford Poirot]
	The animal spirits could signal the start of an upswing in the
Kondratieff cycle. It could signal a new long boom. So I don't see that
"animal spirits" has to mean speculative bubble.
>
> I'd like to get your point of view on this since I'm neither familiar with
> the US economy or the financial sector.
> Oh, and does anyone know good articles or books on that subject, I mean
> factual and pragmatic ones (who said keynesians ?) ???
>
> Thanks in advance, and thanks to all who replied to the last request
> (especially you, Paul),
>
> Olivier Giovannoni
> 68 rue de France
> 06000 Nice, France
> ---
> lab: CEMAFI
> 7av. Robert Schuman
> 06000 Nice, France