Hi Harry and Karen, Let me take your third point first (the one I disagree with!):
At 10:45 23/07/02 -0700, you wrote: <<<< 3. Things that happen in the stock market have little or no effect on the economy. >>>> I'll admit that shares are not prime movers in the economy -- as compared with, say the rate of innovation or investment -- but they have strong secondary effects. A firm with falling share prices might find that its collateral with the bank is insufficient and its loan called in -- leading to bankruptcy. It would have difficulty issuing bonds, too. A pension fund with too much of its funds invested in shares (as most have been in the last decade or so) will have to reduce its payments to pensioners if share values dive. (This has happened to several pensions funds in England recently including some of the most reputable such as Equitable and Sun Life, several more [now called the "walking dead"] have had to stop new commitments, and many more are now below their safety limits and are only kept alive by permission from the regulator [Financial Services Authority].) (The steep and very deep 30% crash of '87 which you mention was a special case. Computer-controlled buying and selling of shares according to pre-set buy-sell limits had become fashionable not long before then. It seemed at the time a failsafe method of getting rich automatically. The stupidity [and danger] of it was not realised until it was tripped off by a wave of positive feedback which only stopped when all such shares had been sold [or in some cases they pulled the plug!]. If all investors had operated in this way, then all share prices would have declined to zero within another day or two.) But there's another more indirect effect which has become increasingly important in the last couple of decades as shareholdings have become much more widely held by the public (in America and England -- it's only just beginning in Europe). This has not only already affected the pensions of tens of millions of people (as mentioned above) but it means that although panic is probably slower to happen in the first place, it becomes much more powerful when it does happen and, through inertia and widespread alienation, from the whole idea of investment -- or even saving in a pension fund. Because of what's happened with English pension funds there's the beginning of an investment strike going on right now -- something very akin to what a lot of Japanese people are doing right now. Now to your other points: <<<< 1. We cannot protect ourselves from guerilla attack without so constricting our freedoms that the guerrillas will have won anyway. >>>> I agree. I am very uneasy about the inroads on personal freedom that Bush is pushing for in America since September 11. <<<< 2. Bush (and congress) cannot keep spending money the way they are without seriously damaging (the somewhat unfounded) confidence in the dollar as a stable reserve currency. >>>> I agree. This has similar features to my mention of an 'investment strike' as regards confidence. The US$ is now sinking. It was probably due to sink in any case because the trade deficit had got so large. A gentle decline in the dollar over a longish period would have benign effects on the US export potential, and thus on the general economy. But a steep decline (as seems to be happening now) bespeaks lack of confidence -- and possibly panic later. Foreign investors (particularly European) are already pulling out of the American economy. If they do so increasingly in the coming months then American business will find it even more difficult to find working capital. (Incidentally, I see that Paul Krugman in today's NYT is in agreement with my view about the coming months/years. On the other hand, the Times Economics Editor, Anatole Kalestsky, is quite blasé about the situation and thinks that America will resume 2 - 3% growth quite soon.) I'll cut the rest of your posting for brevity's sake if you don't mind. I'm still not sure about the special "collectible" feature of land (in distinction to other resources) but, as you know, I'm greatly in favour of taxing land (and buildings) rather than income for three reasons: 1. The value of land depends essentially on the work and values of society as a whole, not so much (and often not at all) on the virtues of the owner; 2. The ownership of land and buildings more accurately reflects the wealth of individuals than income; 3. It's a more effective way of taxing criminals and the super-rich who can cheat the taxman by evading the usual forms of taxation. Keith ---------------------------------------------------------------------------- ------------ Keith Hudson, General Editor, Handlo Music, http://www.handlo.com 6 Upper Camden Place, Bath BA1 5HX, England Tel: +44 1225 312622; Fax: +44 1225 447727; mailto:[EMAIL PROTECTED] ________________________________________________________________________
