comment review 03-11-09

from The Obama Economy

More from Leo

7. Leo Linbeck III:

The economy is not an Obama economy, IMHO, mainly because it is utter nonsense to pretend that a man who has been in office for less than two months could really have had any material impact to this point. The economy has a very long feedback loop; there are millions of decisions made each year that we cannot assess for a decade. Was it worth getting that college degree? Was opening that new plant in Indonesia a good investment? Was hiring that CEO a good decision by the board? Was that house a good deal? Will that new backhoe pay for itself?

Anything that involves the transformation of human or physical capital has a long OODA loop. This is why a stable legal system, clear property rights, and predictable taxation on investment is so important for improving our society.

However, the stock market is different. Why? Because equity markets are forward-looking aggregators of information. They bring together, using a single price signal, all of the various judgments made by investors about the future performance of a company (and, by extension, the economy). Markets are not perfect, of course, for a variety of reasons. But they are a “vote” from the investor class, based upon their perceptions of the future. And perceptions can change very fast: in the blink of an eye. Literally.

So while this may not be the Obama economy, it is most assuredly the Obama stock market.

Can we spook an entire, critical segment of our nation’s economy (investors) after just 30 days in office?

Yes We Can!

L3

Mar 7, 2009 - 2:21 pm

Then this...

11. programmer:

Leo Linbeck III,

You and others on this board have provided (and are providing) a high intensity cram course in post grad economics for those willing to read.

Thank you.

Mar 7, 2009 - 2:30 pm

... and I couldn't agree more.

Thanks to the Belmonters for sharing their insights. now if only i could find more time/read faster.

other informative comments are here, here and here

late addition: also an interesting comment here.