in 1994, I wrote: >First, [Christina] Romer [1993: 31], is wrong to argue that since stock-market "bubbles are, almost by definition, inexplicable events, the [downward] stock market swing is legitimately viewed as an exogenous shock." Such bubbles (and their popping) are not mysterious but are a normal outcome of unfettered stock-market behavior, while the stock market itself is a commonplace accouterment of capitalism as a system. <
Nowadays, this kind of behavior has spread beyond the stock market and even beyond the housing markets (which were bubblish during the 1920s). >Second, and more importantly, the degree of structural stability of the world outside of Wall Street is central to the impact of such shocks. The degree of systemic stability differed drastically between 1929 and 1987 and thus was decisive in determining the impact of the stock-market crashes in those years: even though the magnitude of the Dow's decline was similar to that of 1929, the crash of 1987 had far fewer negative effects on the U.S. economy; its impact seemed limited to the brokerage industry. In fact, given the late-1920s fragility of world capitalism described below, other triggers could have substituted for the Crash in causing the Collapse. Finally, the dynamic nature of capitalism normally makes the existence of "shocks" the rule rather than the exception.< the 11 Trillion dollar question, of course, is about how stable capitalism is at present. >A similar logic applies to durable structures such as corporate law, which are constrained and shaped by the even more durable social structures such as capitalism. The laws of motion of capitalism are consistent only with a limited set of possible bodies of corporate law, while the capitalists actively push for an even smaller set, perceived to favor their interests. Part of the instability of capitalism in the late 1920s was due to that period's corporate law, which allowed pyramiding of corporations (e.g. Insull's utility schemes) and other forms of excessive leverage [Sobel, 1968: chs. 5,6].6 But the possibility of extreme leveraging is a determined outcome rather than a determining factor. Though post-1929 reforms helped prevent these problems for a long time, profit-seeking encouraged innovation and political lobbying to recreate them: in the 1980s, new forms of leverage (e.g., leveraged buy-outs using junk bonds) were invented. Further, as with stock-market crashes, the impact of excessive leveraging depends on the general stability of the economy.< amen! we've seen the results of this trend developing since 1994. published in RESEARCH IN POLITICAL ECONOMY, 1994. -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
