Lyle's Laws

Lyle Burkhead (
Thu, 02 Jan 1997 01:05:42 -0500 (EST)

Eliezer writes,

> The stock market will never be stable until the government gets the heck
> out of it. "Stock market drops 200 points on news of strong economy."
> What? Shouldn't stock prices *rise* if companies are doing better? No,
> because the government, in the name of "stabilizing" (= slowing down)
> the economy, raises interest rates that should be set by private bankers,
> thus causing bonds to be more attractive than stocks.

The same thing would happen if rates were set by private bankers.

Anyway I was kidding about the stock market going up exponentially.
This was supposed to be an absurd fantasy to get the new year off to a
humorous start.

> "The Incredible Bread Machine" is a fine reference on how the entire
> boom-and-bust cycle is intrinsic to government, not capitalism.

When you're ready to read books for grown-ups, you will find that
business cycle theory is a large subject, in which simplistic answers
don't get you very far. You might want to read *Differential Equations,
Dynamical Systems, and Linear Algebra* by Hirsch and Smale,
to get an overview of instability and oscillations in dynamical systems.
Another useful reference is *Perspectives of Nonlinear Dynamics*
by E. Atlee Jackson.