John Makin, AEI

[Ken Hanly]

If you look at the 5 year trend of the DJ index it has more than doubled
from under 6000 in the third quarter of 1996 until the second quarter of
1999 and since then has trended basically sideways between 12000 and 10000
since then. Where is the burst bubble at least in the market indices?  What
you have is a yo you motion within a 2,000 limit. Consumer confidence is
apparently going up. The bubble metaphor seems inappropriate. When a bubble
bursts the whole collapses. This is not even close to what is happening to
indices, as for the underlying economy I am sure Doug or someone will have
the figures. I doubt they represent any sort of collapse.

        The market indices have levelled and no doubt for some of the
reasons that Makin gives. But as yet there does not seem to be any
disastrous downturn in market indices as a result of a peak being reached.
The present indices are not all that far from the original peak.
ttp://quote.yahoo.com/q?s=^DJI&d=c&t=5y&l=on&z=b&q=l
Cheers, Ken Hanly

Here is a quote from Makin:

The Linkage between Financial Markets and the Real Economy

The bursting of an equity market bubble that leads to a prolonged collapse
of the real economy is the manifestation of a most basic and enduring theme
of macroeconomics: the linkage between financial markets and the real
economy. A powerful negative shock to the financial sector, like the
collapse of a stock market bubble, sets in motion a deceptively
straightforward set of events that seems, somehow, to leave policymakers
caught like deer in the headlights. Leading up to the
bubble, a virtual prosperity mania sets in, with households contemplating
undreamed-of wealth, firms bidding for and stockpiling precious skilled
labor, and governments marveling at-and promptly spending-tax revenues that
far exceed their most optimistic expectations. The end comes, as it did
during the past year in the United States, after extraordinary events like
expected, unfailing growth of 25 to 30 percent per annum have come to be
seen as ordinary. That perception makes investors view as unremarkable the
purchase of equities at prices 200 times current earnings, or at more than
ten times the normal price-earnings multiple. Such pricing cannot be

----- Original Message -----
From: Doug Henwood <dhenwood at panix.com>
To: <lbo-talk at lists.panix.com>
Sent: Friday, July 13, 2001 2:28 PM
Subject: Re: John Makin, AEI


> Brad Mayer wrote:
>
> >Although I hope to return to the colonialism (on which Mr. Newman
> >got the Oxford dictionary definition _exactly_ wrong), US/Israel
> >question, on a different subject, this guy John Makin of the AEI has
> >been popping up in the press recently.  Any take on Makin here?
> >
> >URL: http://www.aei.org/eo/eofront.htm
>
> He seems fairly sensible, at least the last 3 or 4 issues of his
> commentaries I read were sensible. Which is another way of saying
> that I agree with his line on the supply-side recession and the
> dangers of post-bubble complacency.
>
> Doug