Trevor Evans wrote,
>Yesterdays Financial Times (2 September 1998) quotes estimates by US
>Federal Reserve economists that 3 to 5 per cent of gains in asset prices
>are spent on consumption, and that given a rise over the last three years
>of $4,500 bn in houshold wealth this would imply that rising stock prices
>have boosted consumer spending by up to $225 bn over three years, or just
>over 1per cent of GDP. Even if the stock market were to decline by a
>further 30 per cent, it says, this would mean a loss of only 1 per cent of
>GDP, which would be serious but not catastrophic.
I think I can follow the math of the FT argument (just barely) but the logic
of it has me stumped. Are they saying, then, that a decline in asset prices
should have an "equal but opposite" effect to a corresponding rise? Sorry,
but that strikes me as a fetishism of prices of the worst sort.
Before refilling my coffee cup, I can think of a half a dozen factors that
would invalidate any such assumption of symmetry. One that intrigues me is
simply the distortion of what is meant by consumption. During a stock market
boom, the financial assets themselves become consumer commodities. The
Federal Reserve economists completely ignore this aspect of "investment" as
conspicuous consumption. Their 3% to 5% estimate is off, approximately, by
an order of magnitude.
I wish to submit as an exhibit in evidence an issue of MONEY magazine -- a
hobby magazine that differs from "Golf" or "Sail" only in its topical focus.
The August 1998 edition bears the cover: "The Stock Market: What's Next".
Inside front cover, two page spread, an advertisement for Cadillac Seville
"It came to un-quo the status." (kinda makes one nostalgic for "the real
thing" or "we do it all for you").
Next two page spread, IBM laptop: "Do strangers watch you unpack your laptop
on the airplane." (calling Dr. Freud, calling Dr. Freud . . .).
(Skip the next two page Hewlett Packard spread that isn't quite up to speed
with the infantile, narcissistic theme.)
And now ("Let the dance begin."), we arrive at the moment of truth: "A pill
that helps men with erectile dysfunction respond again."
The sequence of ads at the front of MONEY magazine speaks volumes about the
fetishization of "assets". For the MONEY man, his portfolio is his penis.
Under that spell, a decline in the stock market is not a rational game of
relative percentages, it is a do or die question of erection or dysfunction.
I understand that rumours of an impending merger between the U.S. Federal
Reserve and Pfizer, Inc. have been dismissed as "premature".
Regards,
Tom Walker
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