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taking stock : addendum

After posting this, I wondered if some of my interpretation might change if I look at things in a more long term context, considering more than just the past 40 years.

Well, NASDAQ doesn't go back any further--it began in 1971. So for NASDAQ, this "lost decade" that we've just had is completely unique. There had always been exponential growth in NASDAQ from the beginning up until 2000, and then no growth from 2000 to 2010.

However, the story *is* a little different if you look back further at the Dow. First of all, while the NASDAQ index did increase during the 1970's (although as I look at it again I realize it didn't quite double, as I said in my earlier post), the Dow did not--it was pretty much flat. But what's interesting is that the 70's was the last 10 years of a 15-year period of stagnation for the Dow. From 1965 all the way to 1980, there was no growth in the DJIA.

I'm too lazy to upload these longer term charts, but here's my summary, which indicates that the current period is not all that unique in the larger context of things... although it also seems to indicate that growth is not all that guaranteed:

The Dow reached a peak at around 340 in the summer of 1929. It crashed hard and fast from that, and then kept getting worse for several years. Reached an abysmal low at 42 in the spring of 1932. Incredibly, that means that a typical investor who had money in the stock market in the summer of 1929 had nearly 90% of his wealth wiped out over those 3 years!! Ouch. (Thank your local congressman for the financial bailouts that we did not have a repeat of the Great Depression this decade.)

By 1936, it had climbed back up to the 150 level, but then stagnated for a full decade. From 1945 to 1950 it climbed a little bit up to 200, and then entered a period of rapid growth for the next 15 years, from 1950 through 1965 (reaching 860 by 1965). Stagnation again from 1965 through 1980, then rapid growth from 1980 through 2000, moving all the way from 860 up to 10,000! Then stagnation through 2010 as it's remained around 10,000 the whole decade.

Interestingly, the peak value of 340 from 1929 was not reached again until 1954, 25 years later. Presumably though, this peak at the end of the "roaring 20's" was just as much of a bubble as the recent tech and housing bubbles. So for those who are waiting for us to get all the way back to bubble levels till they consider it a "successful recovery", you may have to wait another quarter century. Clearly, we have recovered (admittedly, a jobless recovery). But we still have to acknowledge that this decade has been complete stagnation. It's not the first decade where this has happened though. I am noticing a pattern, where things change from growth to stagnation and back roughly every 15-20 years. So perhaps we just have to sit it out and wait--we're through the first 10 years, so maybe another 5 or 10 until the next big boom?

If nothing else, what the past decade indicates is that we haven't yet figured out how to guarantee continuous growth out of the market. Some economists thought in the 80's or 90's that we'd essentially solved the problem, that we'd learned from our mistakes in the past, and that it was all clear sailing from then on. But it seems like it's an instance of history just repeating itself, and if there *is* a way to guarantee growth in every decade, we just haven't found it yet.

In short, while there was a fundamental change this decade within the context of *my* lifetime, it seems fairly normal in the longer term context of the past 80 years. I guess I'll end on that note, which is slightly more optimistic than my previous post =)



( 17 comments — Leave a comment )
Sep. 20th, 2010 04:52 pm (UTC)
The other day I was chatting with a PhD candidate in the curriculum studies program. She received her first PhD in France, for astrophysics. In particular, she was bemoaning the educational programs physics students receive - noting that they fail to engender any sustained understanding of context. For better or worse, our chat reminded me of you.

The "boom-bust" "pattern" you're "noticing" isn't accidental but structural. This is the nature of capitalism. Not exceptional at all.
Sep. 21st, 2010 12:55 am (UTC)
I'm not sure if the lack of "sustained understanding of context" you're referring to is the same thing, but one thing that I found was true is a strong emphasis on narrow specialization rather than generalization.

I think that's true of any academic field to some extent, and for good reasons. Although perhaps even moreso in physics.

It's probably the main reason I left--I don't like narrowing down to focus on very specific subjects. And it gets a lot narrower after graduate school than during. I'd rather get a big picture view of as wide a range of topics and fields as possible. I say the specialization is "for good reasons" because I don't think progress in academic subjects could happen without such specialization... but it does pose a difficulty for someone who likes to be a generalist.
Sep. 22nd, 2010 10:04 am (UTC)
I wouldn't call it the nature of capitalism, so much as human nature, and that capitalism doesn't mask it like other systems might. A capitalistic economy of automatons, free of human impulses, would not show this "boom-bust" behavior.

And I would say neither "accidental" nor "structural" are good words for the market activity. Chaotic is better, which implies it follows some basic rules but is yet unpredictable.
Sep. 22nd, 2010 12:54 pm (UTC)
Then, I would suggest you also misunderstand the nature of capitalism, because there are definitely structuralist relationships of power which constitute capitalism. For example, capitalism depends on disparity and poverty in order to "function". Additionally, the idea of human nature died with Foucault, so I find that supposition even more specious.
Sep. 22nd, 2010 01:15 pm (UTC)
I didn't mean to indicate a lack of structuralism, more that the observed activity is much more than such influences. I see no reason why capitalism a priori requires either poverty or disparity to function. It seems to me that these are the results of capitalism, which doesn't artificially constrain the natural distribution of wealth. So instead, I think you should argue that a system that is not producing poverty or disparity is not true capitalism.

I would say human nature is alive and well in our genetic code.
Sep. 22nd, 2010 04:03 pm (UTC)

I see no reason why capitalism a priori requires either poverty or disparity to function. It seems to me that these are the results of capitalism, which doesn't artificially constrain the natural distribution of wealth.

I disagree.

I'd say that the alleviation of poverty is a big effect of capitalism, not the creation of poverty. I think if you look at just about any communist system (or pre-industrial system) that has opened up the market and gone capitalist, it has reduced the amount of poverty.

However, I'm not sure about whether what he said is right--that seems less clear. Poverty in some form or another still exists within any known capitalist system, so the question is could it still function if there were no more poverty? I would lean towards saying yes, but the problem would be that if everybody is rich then who would clean the toilets or take out the garbage? There would be no incentive to do the nastiest jobs.
Sep. 22nd, 2010 07:16 pm (UTC)
Christ it's difficult to see you so confused. Capitalism alleviating poverty? Absurd. Tragic. Grotesque.
Sep. 23rd, 2010 03:06 am (UTC)
I was hesitant to use the word poverty, as we would like to think it has an absolute component, but we often use it simply to mean "the level of wealth that the worst off among us have" and not "a level without of wealth where certain necessities are unachievable". So here it is more or less synonymous with disparity.

So here we come to the crux--attempted "communism" did reduce disparity/"poverty", yet the overall well-being went down. So I think we just disagreed over terms. I agree capitalism reduces absolute poverty, compared to other systems. It increases relative poverty, because that is simply a statistical sector measuring inequality.
Sep. 23rd, 2010 04:38 am (UTC)

but we often use it simply to mean "the level of wealth that the worst off among us have" and not "a level without of wealth where certain necessities are unachievable". So here it is more or less synonymous with disparity.

I agree this is just a semantic issue, but I'm pretty sure disparity is not the standard accepted definition of poverty. Also, even if it means "the level of wealth that the worst off among us have" I think capitalism tends to decrease poverty (by increasing that level)--that's still not the same as disparity.

I find myself wondering if ankh_f_n_khonsu actually meant disparity or poverty in the absolute sense when he claimed that capitalism increases poverty. I suspect that he, unlike you, actually meant it in the absolute sense.

Edited at 2010-09-23 04:39 am (UTC)
Sep. 23rd, 2010 05:14 am (UTC)
The problem is I think both forms are commonly used.

What I said wasn't clear. I should have said something like: "those who are below x% of the median income are impoverished". As you can see, that only depends on the spread of the distribution, not the mean.
Sep. 22nd, 2010 07:12 pm (UTC)
Yes, the "humane capitalists" constantly argue if they could only fix this or that, all the nasty effects of capitalism could be mitigated. Critical theorists know better.

As I said, capitalism depends on poverty to function - disparity and alienation are implicit within every capitalist transaction. If everyone had a million dollars, no one would be rich. Thus, disparity is an unavoidable structural effect. Further, capitalism relies on debt and hegemony. Without debt, capitalism cannot consolidate wealth - which is its de facto function.

To map human transactions within a chaotic lens seems ... Disconnected? Consciousness, sociology and culture aren't chaotic. At best they might be said to be poststructural, but chaotic? Nah.

Finally, genetic determinism? Seriously? I find this suggestion about as sensible as constituionalism. Such a worldview, in my esteem, is terribly violent, misanthropic, and discursively regressive.
Sep. 22nd, 2010 07:57 pm (UTC)

Yes, the "humane capitalists" constantly argue if they could only fix this or that, all the nasty effects of capitalism could be mitigated. Critical theorists know better.

I'd say you're setting up a false dichotemy there. The humane capitalists are correct that you can mitigate some effects, and the critical theorists are correct that you will never be able to get rid of all negative effects.

The fact remains, that capitalism is the most humane system anyone has ever been able to implement. People have often imagined alternatives that sure hypothetically supposed to be more humane, but is there any evidence that such systems could exist in the real world? I think not. I don't claim it's perfectly humane, just more humane than any other known system.
Sep. 22nd, 2010 10:27 pm (UTC)
Which, clearly, is an indicative of your ideologic prejudices and lack of direct experience. "Humane" capitalism is irreducibly self-negating: at every point in the chain, capitalism objectifies and dehumanizes.

Further, your sense of class-consciousness is dreadfully under-theorized. For this particular blind spot, I suggest you consider Zizek's "First As Tragedy, Then As Farce". For the cultural an ideologic arrogance, however, the only thing that's likely to arrest that faulty politicization is an unpredictable encounter with the Real. IOW, collapse. You seem too conservative to allow that to happen.
Sep. 23rd, 2010 03:30 am (UTC)
I agree capitalism has inherent "nasty" effects, as it will tend to create large wealth disparity. However, I still disagree that disparity is a requisite as an input to capitalism. You could take a hypothetical society that is well-functioning, and completely equal in terms of wealth. If you then instituted capitalistic policies, they would work fine, but would immediately begin to destroy the wealth balance.

sociology, I don't know how you can even process that as a dynamic system. Culture, actually yes, I would say this is chaotic, and becoming moreso as we become more interconnected world-wide. The key feature of chaos is small initial perturbations being magnified to create large-scale excitations, e.g. the butterfly and the hurricane. These days, internet memes can start as someone's typing error or throwaway joke and in a span of a month become common usage by millions. Consciousness I would also claim is chaotic--I am no dualist--since we again can have small, possible random, influences changing our large-scale decisions. Any time we are torn between choices, it opens up the possibility for small effects to dictate our behavior. So Warren Buffet may ultimately decide where to put his next billion dollars depends on how well his breakfast sat with him.

As we become more rational and well-informed, I think the effect of chaos in our actions can be mitigated, as we make decisions more on real observables instead of emotions and delusions. I by no means think we are "mostly" chaotic, just that there is a component to our actions that is definitely so.

Why did you step in with determinism? I would have said "genetic predisposition". This is why humans are 95% heterosexual instead of 50% or other, and why the majority have basic morality. Almost all of this is subject to change, both on the genetic level and especially nurture level, of course. So, raise humans given a median upbringing and normal genetic health, and measure the statistics on behavior/psychology and whatnot. Where you see strong tendencies to one area, that is what I would call "human nature", that is all.
Sep. 22nd, 2010 09:54 am (UTC)
You say this decade has been complete "stagnation", and if you simply mean the major stock indices haven't changed appreciably, sure. However, by your context, it seems you are referring to the economy as a whole, and I have to say I doubt the stock indices are high-fidelity indicators of economic health. Obviously they are correlated, but they include many other factors that are tied into investor confidence in the economy. If you look at US Real GDP over the last decade, we still have a solid 15% growth despite the recent recession. So, I think a better explanation is that investors were relatively more confident during the 90's compared to now.

Sep. 22nd, 2010 04:07 pm (UTC)
Ah, very good point--thanks for adding this. Yes, I should not just be looking at stock indexes.

In light of this, it seems like the 10,000 level that the Dow got up to in 2000 must have been still a bubble... like it was really supposed to be reaching that in 2010, but investors were anticipating it too early. Either that, or the current prices are too low. Let's hope it's the latter!
Sep. 22nd, 2010 04:26 pm (UTC)
I would suspect it is an underestimate, given a few residual fears (at least as of recently): US unemployment and European instability (Greece, Spain). Maybe there are more.

Another thing I thought of: relative global investment. Perhaps this plays a role too, as in, if America is expected to grow faster than Europe, then it will receive more direct investment than Europe. So even if a given economy is unchanged, if it is outperforming (or expected to outperform) its peers, it may see stronger index performance.
( 17 comments — Leave a comment )


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