Fueled by the dream of an easy retirement, the stock market became a national obsession in the late 1990's, filling the coffers of America's giant corporations. As the stock market has declined, the tone of books on the subject has begun to change.
B. Mark Smith's Towards Rational Exuberance already looks anachronistic, with it's claim that the stock market bubbles of 1920's, 1960's and 1990's weren't really bubbles. Irrational Exuberance is an accessable examination of the latest evidence and research on financial bubbles and panics, but it does little to connect economic theory to the impact that uncontrolled speculation has on the lives of workers and consumers. What if Boomers Can't Retire, although it doesn't quite take a Green perspective, points out that the same demographic forces that are putting stress on social security will make it impossible for boomers to retire comfortably on stock market investments; when they start to withdraw their money, the resulting drop in prices will eliminate their gains.
Title: Towards Rational Exuberance, the evolution of the modern stock market.
Author: B. Mark Smith
Publisher: Farrar, Straus, and Giroux (New York)
ISBN: 0-374-28177-7
Year: 2001
Pages: 342
Libraries: TCPL
Title: Irrational Exuberance
Author: Robert J. Shiller
ISBN: 0-691-05062-7
Year: 2000
Pages: 296
Libraries: TCPL
Title: What if Boomers can't Retire? How to build real security, not Phantom Wealth.
Author: Thorton Parker
ISBN: 1-57675-112-0
Year: 2000
Pages: 259
Libraries: TCPL
Towards Rational Exuberance is polished, slick and packed with amusing anecdotes, but seems condemned to the same dustbin as Harry Dent's The Roaring 2000's and other irresponsible tracts hyping the late 90's boom. B. Mark Smith makes the case that the stock market run-ups of the 1920's and 1960's weren't bubbles, because, over time, stock market prices returned and surpassed their earlier high levels. He claims that these changes represent fundamental changes in the economy, such as the mass adoption of technologies like electricity and the automobile, and of styles in investing. Although the book is full of interesting stories of Wall Street personalities throughout American history, it ducks the difficult questions of what economic forces caused Americans to suffer during the hard economic times of the 1930's and 1970's. Although his argument explains why stocks did so well in the great expansion of the 20th century, it doesn't rule out that problems such as a global water shortage, a disappearing supply of petroleum, and demographic changes could send stock prices back to 19th century levels.
Robert J. Schiller's Irrational Exuberance is a pop-academic treatise that considers various explanations for the stock market boom of the 1990's, from the internet to the investing habits of baby boomers. Stoked by cable channels with 24 hour news and the "new era" propaganda that was popular in the 1920's and 1960's, this led to a self-amplifying financial bubble, in which investors buy assets rising rapidly on the price hoping they can sell them to "a greater fool".
Schiller writes about previous bubbles in the US and also about bubbles in other countries, demonstrating that large positive changes in prices are often followed by stagnation or decline. He considers how the herd behavior of investors demonstrates that the "efficient market" theory (that financial markets always represent the most correct price of assets) is incorrect. Despite his erudition, Schiller's book is unsatisfying for many of the same reasons as Smith's: He doesn't consider the social role that stock market plays making capital available to businesses and providing a way for people to invest for the future... And the damage done to our lives, jobs, and communities by it's malfunctions. In a stark denial of reality, he suggests that the effects of large-scale economic fluctuations could be reduced by creating a new class of derivatives tied to economic indicators such as the GDP -- without answering the question of where we can find real wealth to match our paper wealth.
With jackhammer prose and a layout style reminiscent of a large type edition, What if the Boomer's can't retire? is the ugly duckling of the bunch. Even so, Thorton Parker effectively debunks the fantasies of unlimited growth that the financial services industry has seduced the public with since the 1980's. Stock prices are set by the balance of supply and demand -- they go up when many people want to buy stocks, and go down when many want to sell. Stock prices rose in the 1990's because Baby Boomers invested in mutual funds for retirement. Because they'll need to sell those stocks in order to have money for retirement, prices will inevitably fall and the money won't be there for most of them.
Thorton is critical of the "phantom wealth" created by the stock market which leads investors away from productive investments to "parasitic investments." Parasitic investments that produce short-term returns based on financial bubbles divert resources away from productive investments that produce more wealth in the long term. This process makes the rich richer, the poor poorer, and doesn't do anything to help our growing social problems.
Thorton calls upon us to respond to this crisis, to create a new, economically viable, life plan for the baby boom and future generations. He points to many books critical of capitalism, such as Paul Hawken's The Ecology of Commerce and David Korten's The Post-Corporate World but spends only a few pages on fundamental criticisms. Many boomers will need to accept diminished expectations, and will need to work past of the age of 65. We'll need to review our lifestyles and patterns of consumption, and find ways to live comfortably with less. Individuals, as well as institutions will need to create new investments that will support productive, sustainable endeavors. Although Richard Thorton falls far short of Richard Douthwaite as a green economist, What if the Boomer can't Retire? takes the difficult first step of waking a broad audience from the 20th century dream of unlimited growth.
