>From: Robert Weissman <rob at essential.org>
>To: corp-focus at venice.essential.org
>Subject: [corp-focus] Is the Market a Ponzi Scheme?
>Date: Mon, 27 Mar 2000 21:58:27 -0500 (EST)
>
>Is the Market a Ponzi Scheme?
>By Russell Mokhiber and Robert Weissman
>
>The Internet economy, with its fast companies, is poised to replace the
>old economy, with its slow ones.
>
>Forget current profits. Sales are booming, and the profits will come. It's
>new era economics. The result -- a raging bull market.
>
>Geeks with pencils in their shirt pockets become instant millionaires.
>Spend your days staring in front of a computer and strike it rich. In some
>areas, millionaires are a dime a dozen. The working poor become invisible.
>We've become a casino culture.
>
>So, is the booming market for real, or is it a naturally occurring Ponzi
>scheme?
>
>Charles Ponzi is the crook from the 1920s who told people he had a
>business that made money exploiting mispricing in international postage
>reply coupons. In fact, there was no such market, but he took people's
>money and promised them a spectacular rate of return on their investments.
>And he paid off the first round of investors with the money he received
>from the second round of investors. And he paid off the second round of
>investors with the money he received the third round -- until the scheme
>ballooned into a multimillion dollar market. Finally, the bubble burst,
>leaving the last round of investors holding the bag.
>
>Sound familiar? Robert Shiller, A Professor of Economics at Yale
>University, thinks it could be a good explanation for what's happening in
>the market now. Except that there is no Charles Ponzi here. And there is
>no deception -- it just developed naturally. And it's being fed by
>irrational exuberance, feedback loops, herd behavior, and epidemic
>madness.
>
>It seems that people never learn from previous Ponzi schemes until it is
>too late. A couple of years ago, in Albania, for example, a gargantuan
>Ponzi consumed a good fraction of a year's gross national product for
>Albania. When the Ponzi scheme finally collapsed, there was rioting in the
>streets, the Army came out, shot some protesters, and the government
>resigned in disgrace. There was mass chaos.
>
>Shiller has written a new book, Irrational Exuberance (Princeton
>University Press, 2000), in which he looks at the current speculative
>bubble in the United States through a lens of behavioral economics. It's
>not just numbers driving the market, he reminds us, it's mass psychology,
>too.
>
>And Shiller is not just another apolitical market naysayer.
>
>He makes the point that there is a moral demoralization that occurs when
>the market bubble inflates to the degree that it has. Instant millionaires
>abound, but what about hard-working regular folks who toil
>day-in-and-day-out for a living wage, come home, turn on the tube and hear
>about the instant millionaires who struck it rich by signing on with this
>dotcom or that?
>
>"When people see others flaunting their wealth, it's painful" he told us
>recently. "It is so painful to see people devoting their lives to caring
>professions -- school teachers, police officers, fire fighters -- while
>someone buys into the market and gets rich. You feel like a sucker. It
>feels bad. Nobody wants to be a loser. Today, it seems the world is
>divided into winners and losers. The old feeling of solidarity with your
>fellow human being is eroded somehow. There was a feeling of labor
>solidarity. I remember hearing union songs on the radio when I was growing
>up in Detroit. That era is gone. If you work for your money, if you are
>unionizing, you are a loser."
>
>And it is not as if Shiller himself wrote the book out of sour grapes. As
>a young professor at Yale in 1982, he invested in stocks, and just got out
>recently, when, he believes, the market started spinning out of control.
>
>Shiller predicts poor market performance over the next five years, with
>the Dow dipping to 5,000 and perhaps slowly coming back to 10,000 by 2020.
>
>"People seem to think that the market has to grow explosively," Shiller
>said. "You ask someone -- what is the Dow going to be in 2020? And they
>say -- oh, my God, 200,000. That would be the knee-jerk response. But it
>represents a misreading of history."
>
>Shiller recommends that investors get out of stocks now -- as he has done.
>
>He points out that one major problem with Ponzi schemes is that until the
>end, people are making lots of money. At the end, everyone loses, and
>things turn ugly.
>
>
>Russell Mokhiber is editor of the Washington, D.C.-based Corporate Crime
>Reporter. Robert Weissman is editor of the Washington, D.C.-based
>Multinational Monitor. They are co-authors of Corporate Predators: The
>Hunt for MegaProfits and the Attack on Democracy (Monroe, Maine: Common
>Courage Press, 1999, http://www.corporatepredators.org)
>
>(c) Russell Mokhiber and Robert Weissman
>
>
>
>_______________________________________________
>
>Focus on the Corporation is a weekly column written by Russell Mokhiber
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