>'COOLING' ECONOMY SPARKS
>SEARCH FOR EXPLANATIONS
>
>Recent reports on the state of the U.S. economy have been somewhat
>restrained. No big headlines about a continuing "booming" economy.
>================================
>
>Or maybe you could read the Galbraith interview in the Guardian:
>
>"The bubble has to burst." Even mentioned the word Keynes -- "but they
>won't call it that!"
But don't hold your breath waiting for the 'bubble' to 'burst'. The bubble
is a metaphor and 'bursting' has everything to do with the metaphor and
nothing to do with the underlying phenomena of the stock market or the
economy. Even in the classic case where share prices have fallen
catastrophically -- October 29, 1929 -- what occurred could only be
*metaphorically* (and in retrospect) described as the bursting of a bubble.
The show business magazine, Variety, carried the headline "Wall Street Lays
an Egg" following the 1929 crash. As evocative as the headline may have
been, one wouldn't want to rely on *that* metaphor to predict future
financial events. A bursting bubble is no more accurate than an egg.
I suspect there's an element of wishful thinking in the 'bubble's going to
burst' prophecy (and I have to confess to endulging in that wishful thinking
from time to time). We say to ourselves, "maybe that will finally open
people's eyes to the brittleness and artificiality of this horrible,
horrible regime." Who's to say if even a 80% to 90% market "correction"
would open *enough* eyes.
My main objection to the bubble bursting metaphor is that it overlooks the
most interesting contemporary features of financial markets. When you think
of the amount of money that is lured into the market as a way to avoid or
reduce taxes (e.g. pension fund contributions and retirement savings plans)
it begins to look like financial markets have appropriated a sizable chunk
of the revenue collecting power of the state.
In effect, the bubble can't burst because it has the implicit guarantee of
the state. It doesn't matter how inefficient or corrupt the financial
markets are, the state will bale them out by diverting more and more tax
revenues to them (the savings and loan bailout, the Japanese bridge bank,
the IMF bailouts, Social Security "reform"). Of course this ever-expading
sluice of diverted tax revenues removes from the markets the much touted
element of "discipline" that conservatives claim is the feature making
markets more efficient than the state in allocating resources. If there is
to be a come-up-pance of the economic folly of the 1990s, I think it will
resemble more the East Bloc events of 1989 than the stock market collapse of
1929.
Regards,
Tom Walker
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