Re: Economic reform policy: Some views and proposals

[Trond Andresen <trond.andresen@xxxxxxxxxxx>]

I forgot to comment on this from Gary Santos.

At 04:27 27.04.03 +0800, Gary Santos wrote:
>.........
>On the matter of the stock market's longwave, I do believe that it exists.
>Not so much as a wave of decades duration but as a phenomenon that is
>exhibited by financial markets given the participation of the mass market.
>When people have enough excess "savings" arising from a boom in investment
>invariably a bull market followed by a bear market results.

We agree on the existence of long-term cycles, but not on the probable
explanation (mechanism) for them. Se other message from me with a reference
to my analysis of the mechanism.

>The better
>solution (instead of an additional transaction fee which distorts returns
>inefficiently, I submit)

I made it explicitly clear that I did not suggest a transaction tax. Instead
I proposed a tax on stocks held, i.e. a "property tax", based on current
value. I have simulations of my long-wave stock model that shows that such a
tax very efficiently dampens the long cycle. Imagine a person holding a stock
portfolio in -- say -- 1996. It has finally sunk in for that (and many
other) person(s) that the market is really taking off -- that stock
appreciation is now in the double digit range and that this seems to be a
robust trend. But in my scenario the "stock market tax committee" meets --
assesses the situation analogously to the board of a CB when they meet to
adjust the overnight rate -- and increases the stock tax to -- say -- 10%.
This will take the momentum out of further increase. The balloon is given a
small puncture before it has gotten very big.

>....In our latest boom-bust cycle, I would particularly fault the
>privatization of social security which further induced and facilitated
>common participation. A lot of academic hype on "stock market returns in the
>long term" was at its base.

I agree with this.

Trond Andresen