William Dickens wrote:
>
> I have to agree with Alex Bryan. Here is a graph of the S&P 500
>
> http://finance.yahoo.com/q?s=^SPX&d=c&t=5y&l=on&z=b&q=l
>
> About a third of the drop occurred before 9/11, a third occurred immediately after
>9/11, and the other 2/3rds occurred in the first half of last year. Why 4/3rds?
>Because most of the drop after 9/11 was recovered over the next few months. But this
>is silly anyway.
That's a good point about the post-9/11 recovery. But I still suspect
the indirect consequences of 9/11 played a role. From the graph, it
looks like the post 9/11 recovery coincided with the surprisingly easy
victory over the Taliban. And it's plausible that part of the
subsequent decline stems from the growing realization that further
military action would continue after the Taliban's defeat.
> 1) I challenge anyone to explain what 9/11 told us that we didn't already know that
>would explain something on the order of a 40% drop in the rational valuation of the
>US capital stock!
>
> 2) For that matter, what combination of events could have provided information that
>would lead one to conclude that the PV of future income streams would be 40% lower in
>July of last year than it was thought to be in July of 2000? It was a bubble.
>Financial markets aren't fully efficient. Live with it.
This is a straw man. I was arguing that the size of the bubble is being
over-stated, and the importance of standard unforeseeable random shocks
understated.
--
Prof. Bryan Caplan
Department of Economics George Mason University
http://www.bcaplan.com [EMAIL PROTECTED]
"He wrote a letter, but did not post it because he felt that no one
would have understood what he wanted to say, and besides it was not
necessary that anyone but himself should understand it."
Leo Tolstoy, *The Cossacks*
