Vol.64/No.7 February 21, 2000
Wall St. questions basis of growth
BY GREG MCCARTAN
A feature article in the Wall Street Journal by Greg Ip highlights worries of a section of the ruling class about the real health of the economic expansion. Rather than thanking the "remarkable economic boom," soaring stock prices "appear to be driving many of the positive economic forces at work," the paper says. "They have stoked consumer spending, padded corporate profits, kept a lid on inflation, and chipped away at the budget deficit."
Quoting a high officer of the Pacific Investment Management Co., the paper says, "We have a bit of a Ponzi scheme going on here. At least some of our prosperity is based upon prosperity itself."
Ip points out that many companies "have booked hundreds of millions of dollars in profits by selling stakes in Internet related start-ups." The Journal worries that even "big, mature companies" like Lucent Technologies have enjoyed "windfall stock gains in their employee pension plans, enabling them to book pension income instead of expense."
Posing the question, "What happens if this wealth effect goes into reverse?" Ip says housing and other sectors of the economy will take a hit. He quotes an editor of a bourgeois economic group: "Once people realize they can't get 20 percent on stocks year after year, they'll finally realize, 'Hey, I have to save a little bit to reach my retirement goals.' " From the article it was clear what class the people he referred to are from.
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