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Thursday, June 19, 2003
Still stupid after all these days
Paul Krugman says:
The big rise in the stock market is definitely telling us something. Bulls think it says the economy is about to take off. But I think it's a sign that America is still blowing bubbles — that a three-year bear market and the biggest corporate scandals in history haven't cured investors of irrational exuberance yet.
Or, to put it another way: it's hard to find any real news to justify the market's leap. Instead, investors seem to be buying stocks because they are rising — which is pretty much the definition of a bubble.
[snip]
Don't tax cuts and low interest rates create the conditions for an economic rebound? Well, interest rates have been low for a while. And everything that has happened since 2001 suggests that Bush-style tax cuts — which, because they are targeted on the very affluent, basically give people with plenty of cash to spare even more cash to spare — provide very little employment bang per deficit buck. Meanwhile, desperate state and local governments are continuing to slash services and, in a growing number of cases, raising taxes, undoing much or all of the stimulus from the federal government.
Does the collective wisdom of the investor class perceive an imminent, vigorous recovery that is invisible in the data? The market isn't always right. It wasn't right when it sent the Nasdaq to 5000; it wasn't right in the fall of 2001, the summer of 2002 or the late fall of 2002 — three would-be bull markets that fizzled. And selling by corporate insiders hit a two-year high in May.
Meanwhile, the average stock is selling at 31 times earnings, twice the historical norm. And if you take into account pension liabilities and the cost of stock options, that number goes above 40.
To which Donald Luskin replies:
KRUGMAN'S BORE MARKET A lot of Paul Krugman critics seem to feel obliged to imagine that if only he'd stop wasting his time on all those angry partisan tirades he'd be able to write great columns on economics. He's such a brilliant guy... what a waste of a great mind... Wrong! Check out today's New York Times op-ed. It's just about the most pedestrian, commonplace, cliché-ridden, shop-worn bear case for equities that you're ever likely to read. This stuff wouldn't even make it on CNBC.
Gee, thanks for the brilliant analysis, Mr. Poor & Stupid.
Kevin Drum had a few things to say about Luskin a couple of days ago. Luskin is starting to look like Charly in the second half of Flowers for Algernon.
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