Re: Dismal science
I think the "war" word will turn out to be no-win for stockmarkets. Either people will conclude there is a sustained period of war, in which case I assume 4-6% isnt a full downward correction for going to a major war. Or in time people will conclude that there isnt a war but there is a sort of lost sense in aspects of America's secure identity and other uncertainties caused by mainly pessismistic scenarios ofthe ways in which the world has chnaged I dont know the time scale (maybe months) but I'd guess we'll see stockmarkets20 per cent down before we see 20 per cent up . I also believe that there's a big black hole in understanding the dynamic impacts that the American identity has on different peoples of the world.Too complex asubject to start to thread here, though in my mind it impacts many macroeconomic questions in an intangibles and network age. chris macrae, [EMAIL PROTECTED] Chief Brand Officers Association, Founding Group http://www.egroups.com/group/melnet2 - Original Message - From: Pierre Lemieux To: [EMAIL PROTECTED] Sent: 16 September 2001 2:50 AM Subject: Dismal science According to a Harris poll (http://www.harrisinteractive.com/news/allnewsbydate.asp?NewsID=356), 65% of American shareholders think that stocks will go down when the market opens on Monday, but only 1% intend to sell -- presumably out of patriotism. The fact that markets are down elsewhere in the world also points to a bearish Monday.Now, if I am a patriot and believe that stock prices will go down but that nobody else will sell, I will reason that I am better off selling. Then, I don't contribute to the crash (for there won't be one) and don't lose my money either. (Moreover, not all stock holders are patriots, nor Americans for that matter.)Consequently, one would expect a drop on American exchanges on Monday (5%-6%?). Any other ideas? PIERRE LEMIEUX Visiting Professor , Université du Québec à HullCo-director of the Groupe de Recherche Économie et Liberté (GREL)Research Fellow, Independent Institutehttp://www.pierrelemieux.org[EMAIL PROTECTED] (Backup: [EMAIL PROTECTED]) Montréal address: C.P. 725, Tour de la Bourse, Montréal, Canada H4Z 1J9 Fax: 1(819)585-4423 PGP Key: 0xBDFFCD16Fingerprint: CF3E 4A3F 57AB 8AB2 88FB A1D8 C83D 2E15 BDFF CD16
Posts on Stock Market
First, on Monday I gaurantee you that if the market functions, there will be a buyer for every seller. Every transaction has two sides. Whenever you hear commentators saying there were more sellers than buyers today so the market went down you should wince. Second, you don't have to be a patriot to think that the market will go down, but that you won't sell. The market could open down -- prices significantly lower than last Monday's close. That is typically what happens when there is bad news between the close and the open. If that is the case there is no point in selling even if you know for certain that the market is going down because there is no opportunity to get out before the prices go down. Sometimes it seems that the market is dropping over time. That's because the indicies that are reported in the media are calculated on the basis of the last transaction. When the market opens in the morning after bad news it can take some time before all stocks are trading. During that time the indicies are being calculated using a mixture of the new prices and the last closing price. Thus the appearance of stock prices dropping over time after the open even though prices are simnply opening lower. Third, world stock prices were somewhat lower on Friday than on Monday when US exchanges were last open. So we probably should expect that the market will open down. Fourth, as horrible as the events of last week were I don't think they have much economic significance. a) For all the talk of consumer confidence, empirical analysis suggests that it is a very minor factor in consumption demand (comparable to interest rates) and is dwarfed by the importance of income. Further, we don't know how this is going to affect consumer confidence or purchasing decisions. If people fear ratioing or shortages they might spend like crazy. Or people may be feeling better about themselves and their country as a result of the burst of patriotism. b) This isn't going to be much of a war. We probably don't have much of an enemy. Unless we can link Iraq pretty tightly to the attack (which seems unlikely) our only enemy is going to be a handful of terrorist training camps which have probably already been emptied out and the government of Afganistan. Its not clear what our objective in a war against Afganistan would be, but assuming we don't try to go in and occ! upy territory we won't need to spend a whole heck of a lot more money to fight this war so no big fiscal effects (unless we use this is an excuse to build up our military, build a missle defense, etc.) c) Rebuilding will take place over time and will be a tiny tiny drop in the bucket when measured on the same scale as GDP. No fiscal effect there. (But Fabio, do you really think that Keynsianism is so dead that an exogenous shock to demand won't affect the economy? Your joking right? Even the most hard core RBC people are building sticky prices into their economic models these days and a negative shock will have effects on output in such a model.) d) So that leaves impacts on financial markets as one more way that this could have an effect. But world financial markets have been mostly open. Only US equity markets have been closed. I don't see any reason to expect anything more than a decline at the open of the magnitude we've seen in world markets over the last week. Finally, despite all these relatively optomistic thoughts I'm considerably more pessimistic about the state of the economy today than a week ago. But this is mainly because of several statistics that came out last week reporting data from before the bombing that suggest that what looked like a turn around in the late Summer hasn't materialized. I had thought we might be seeing growth pick up in the third and fourth quarter. I don't see that happening now. -- Bill Dickens
Re: Destruction and keynesianism
Pierre Lemieux wrote: Following Tuesday's tragic events, isn't it surprising that we don't hear much the Keynesian argument that repairs and reconstruction (plus, presumably, military purchases) will boost aggregate demand and pull the economy out of the recession it was drifting into? We even did not have to dig holes and refill them to boost aggregate demand as Keynes would have suggested, for some barbarians did the first part for us. Paul Krugman already has said this! -- Prof. Bryan Caplan Department of Economics George Mason University http://www.bcaplan.com [EMAIL PROTECTED] 'When a man thinks he's good - *that's* when he's rotten. Pride is the worst of all sins, no matter what's he's done.' 'But if a man knows that what he's done is good?' 'Then he ought to apologize for it.' 'To whom?' 'To those who haven't done it.' -- Ayn Rand, *Atlas Shrugged*
Re: Destruction and keynesianism
Well worth reading, thanks. One should read the NYT before accusing Keynesians to have become economists! I would still think that we heard the Krugmans less that we could have expecetd. One interesting thing in Krugman's letter is his model of government. He says something like, It's too bad, but politicians may not be as altruist as I would want them to be (and as I am myself). At 14:50 16/09/01, you wrote: on 9/16/01 12:27 PM, Pierre Lemieux at [EMAIL PROTECTED] wrote: Thanks, but where? http://www.nytimes.com/2001/09/14/opinion/14KRUG.html At 13:04 16/09/01, you wrote: Pierre Lemieux wrote: Following Tuesday's tragic events, isn't it surprising that we don't hear much the Keynesian argument that repairs and reconstruction (plus, presumably, military purchases) will boost aggregate demand and pull the economy out of the recession it was drifting into? We even did not have to dig holes and refill them to boost aggregate demand as Keynes would have suggested, for some barbarians did the first part for us. Paul Krugman already has said this! -- Prof. Bryan Caplan Department of Economics George Mason University http://www.bcaplan.com [EMAIL PROTECTED] 'When a man thinks he's good - *that's* when he's rotten. Pride is the worst of all sins, no matter what's he's done.' 'But if a man knows that what he's done is good?' 'Then he ought to apologize for it.' 'To whom?' 'To those who haven't done it.' -- Ayn Rand, *Atlas Shrugged* PIERRE LEMIEUX C.P. 725, Tour de la Bourse, Montréal, Canada H4Z 1J9 http://www.pierrelemieux.org [EMAIL PROTECTED] (Backup: [EMAIL PROTECTED]) PGP Key: 0xBDFFCD16 Fingerprint: CF3E 4A3F 57AB 8AB2 88FB A1D8 C83D 2E15 BDFF CD16 PIERRE LEMIEUX C.P. 725, Tour de la Bourse, Montréal, Canada H4Z 1J9 http://www.pierrelemieux.org [EMAIL PROTECTED] (Backup: [EMAIL PROTECTED]) PGP Key: 0xBDFFCD16 Fingerprint: CF3E 4A3F 57AB 8AB2 88FB A1D8 C83D 2E15 BDFF CD16
