Is the US stock market headed for a bubble? Maybe…but what do we know?
Our guess is that the people who are buying stocks today have a lot more confidence in the Fed than we have. As near as we can tell, today’s stock prices owe a lot to the Fed’s manipulation of asset prices and little to the fact that the companies are more intrinsically valuable…or more likely to produce higher earnings per share.
Watch out. Artificially priced markets are like huge bungee cords. You can stretch them out. But the further they get pulled out, the greater the sting when they snap back.
When will that happen? We don’t know that, either. But we’re not going to stand in front of it waiting for it to happen.
There are two groups of people in the world.
In one group are those who think they know things. In the other are the people who think those in the first group are idiots.
These are not absolutely separate categories. Instead, they share a long border and plenty of spots for crossing under cover of night.
Aristotle was perhaps the first and foremost of those who thought he knew something. He had it all figured out more than 2,000 years ago. There was a natural order to things, he thought.
Civilised people should live in city states; anyone beyond the city walls was either a ‘beast or a god’. And the city state itself — the ideal form of political organisation — was to be ruled by…well…the rulers.
That was just the way it worked. Aristotle: ‘For ruling and being ruled are not only necessary, they are also beneficial, and some things are distinguished right from birth, some suited to rule and others to being ruled.’
Why a city state and not a country state? Why couldn’t people rule themselves? Who was to say who the ruler should be?
You could ask as many questions as you wanted. Aristotle would have just as many silly answers. But even the ancients were on to him.
‘None of us knows anything, not even whether we know anything or not,’ said Metrodorus of Chios, aiming for Aristotle’s head.
But it was the great Pyrrho from Elis who developed the philosophy we know today as ‘scepticism’. Loosely, a sceptic is someone who suspects that other people don’t know nearly as much as they think they do.
And loosely speaking, the sceptics are mostly right. When it comes to central banking and central economic planning, they are always right.
The planners and world improvers are reliable sources of amusement, and not much more.
Tom Friedman, Ben Bernanke and Paul Krugman reduce the sum of human wisdom every time they open their mouths. Bernanke thinks he can solve a debt problem…with more debt.
Krugman thinks he can solve a spending problem with more spending. Friedman doesn’t think at all. But that doesn’t stop him having a solution for every problem. (And if you applied his solution, you’d have a much bigger problem.)
Our old friend Pierre Lemieux reminds us of Adam Smith’s comment:
‘The man of system […] is apt to be very wise in his own conceit, and is often so enamored with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it.
‘He goes on to establish it completely and in all its parts, without any regard either to the great interests or to the strong prejudices which may oppose it: he seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chessboard; he does not consider that the pieces upon the chessboard have no other principle of motion besides that which the hand impresses upon them; but that, in the great chessboard of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might choose to impress upon it.’
The idea that you can organise a society according to your own prejudices is ancient. Old, too, is the notion on which it depends: that you have some knowledge that others don’t.
In fact, all you know is what everyone else knows: nothing! And we’re not even sure about that.
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