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Jason McCullough
09-06-2006, 08:19 PM
Surprisingly, the bit I'd recommend the most about Galbraith's The Great Crash (http://www.amazon.com/Great-Crash-John-Kenneth-Galbraith/dp/0395859999/sr=8-1/qid=1157598650/ref=pd_bbs_1/103-4630739-4723852?ie=UTF8&s=books) is that it's hilarious.


Observing this group as a whole Professor Dice was especially struck by their "vision for the future and boundless hope and optimism." He noted that "they did not come into the market hampered by the heavy armor of tradition." In recounting their effect on the market, Professor Dice obviously found the English language verging on inadequacy. "Led by these mighty knighst of the automobile industry, the steel industry, the radio industry..." he said," and finally joined, in despair, by many professional traders who, after much sack-cloth and ashes, had caught the vision of progress, the Coolidge market had gone forward like the phalanxes of Cyrus, parasang upon parasang and again parasang upon parasang..."

Referring to the November 7th "victory boom" in the market on Hoover's election:


Apart from the afterglow of the election, there was nothing particular to excite this enthusiasm. The headlines of the day told only of the sinking of the steamship Vestris and the epic achievements of the officers and crew in shouldering aside the women and children and saving their own lives. November 20 was another huge day.

Ok, maybe it's better in context.

Some other items of note:

* The shit-talking (release in 1950s) about cynical, politically opportunistic new dealers.
* The stylistic and discrediting-by-association analogies between the 1930s regulatory hunt for speculator crooks in the stock market by the new dealers, and the 1950s McCarthy hunt for commies.
* The combination of four items he specifically flags as making the general economy vulnerable to the stock crash: a decline in the housing market, booming productivity, flat wages for everyone but the rich, and enormous income concentration at the top.
* The amazing varied and numerous incantations of the "fundamentals are sound" mind-cure positive thinking line that got trotted out then - if we say the economy is fine, the economy will be fine! Clap louder! - and have been used in every decline since then.

MikeSofaer
09-06-2006, 08:34 PM
They did not come into the market hampered by the heavy armor of tardition.

That is more hurtful than funny.

Glenn
09-07-2006, 11:49 AM
* The combination of four items he specifically flags as making the general economy vulnerable to the stock crash: a decline in the housing market, booming productivity, flat wages for everyone but the rich, and enormous income concentration at the top.
Could someone explain the reasoning behind that one?

Jason McCullough
09-07-2006, 12:03 PM
When productivity is going up significantly, you're getting more production out of the workers you've already hired, so there's a less of an incentive to hire more people. It takes a very big economic boom to counteract this; it's part of the reason the labor market has been so blah since the 2000 recession.

Glenn
09-07-2006, 02:17 PM
Okay, booming productivity can be bad for the labor market. How does this make the general economy vulnerable to a stock crash?

shift6
09-07-2006, 09:36 PM
* The stylistic and discrediting-by-association analogies between the 1930s regulatory hunt for speculator crooks in the stock market by the new dealers, and the 1950s McCarthy hunt for commies.
So can we now expect less of this from everyone here in P&R?

Jason McCullough
09-08-2006, 10:33 AM
Okay, booming productivity can be bad for the labor market. How does this make the general economy vulnerable to a stock crash?

It all kind of fits together. Contrary to rhetoric, even now the middle class isn't very exposed to the stock market. By contrast, the rich are, and when the market crashes they cut way back on spending. If they've been getting all the pay raises and are all only real source of consumer demand in the economy, then a crash results in a huge drop in demand as the rich cut back. Additionally, unlike the middle class, which doesn't adjust its spending all that much even in recessions (still have to buy food, toilet paper, and pay the mortgage), the rich can wildly cut back at the drop of a hat. The middle class labor market is also weak, so isn't going to take up the slack.

Shift, he was talking about elected official and the like political rhetoric, not guys on the street. :)

shift6
09-08-2006, 11:20 AM
Oh I know, I was highlighting that for our own benefit. :)

But as far as the middle-class exposure to the market, I highly disagree. Essentially everyone's retirement funds are in stocks of their own company (401K, options, etc) and elsewhere (external IRAs, etc).

Rich people don't put the bulk of their money in stocks, they put it in bonds. For one thing the returns are solid and steady and not as risky, and for another many of the bonds are either insured some way or another. Rich people who stay rich (besides heiresses and celebrity types) don't dump their stuff into the nasdaq as a rule.