A nice splash of cold-water on the bubbleheads:
[critique of a NY Times article]
This article discusses the fact that the Bush administration
does not appear to have any figure who can rally the stock
market, in the way that Robert Rubin apparently did during
the Clinton years. The article does not present any reason
that the administration should want to rally the stock
market.
From the standpoint of the economy as a whole, it is
extremely harmful to have an over-valued stock market as
we did in the last years of the Clinton administration. As a
result of the over-valuation in the market, telecom and
Internet companies were able to raise capital at almost no
cost. This led them to undertake large-scale investments
that have proved almost entirely worthless. If the market
had not become over-valued, it is unlikely that they could
have gotten financing for many of these projects, and
instead the money may have been used for more productive
investments.
The over-valuation of the market also led many people to
save less than they would have otherwise, since they
thought they held very large stock portfolios. Now that the
market has moved back towards more reasonable levels,
many families are recognizing that they have saved far too
little for their own retirement.
It is also important to note that the stock market is
redistributive, transferring wealth from those who hold little
or no stock (approximately 75 percent of the population), to
those who hold large amounts of stock. From the
perspective of the nation's economy, it would make no more
sense for Bush to try to rally the stock market with
encouraging words than it would for him to try to drive up
the price of corn futures. Obviously, stock holders will be
happy if stock prices rise, just as holders of corn futures
would be happy to see their prices rise, but there is no
general public interest in seeing these people get richer.
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