Re: 1929 deja vu

From: Robin Hanson (
Date: Tue Apr 25 2000 - 08:48:43 MDT

At 01:07 PM 4/24/2000 -0700, you wrote:
>Robin writes:
> > Experimental economists have been able to reliably induce asset bubbles
> > in lab experiments. ... Appropriately constructed futures markets can
> > also make assets bubbles go away even with less experienced traders.
>How about the existing financial futures markets? Are they adequate to
>prevent irrational bubbles? There are LEAPS options which are relatively
>long term (by market standards), two years or more. If there are new
>kinds of financial instruments which could stabilize the markets, that
>would be very interesting to hear about.

Real markets in all their complexity are a lot harder to figure out than
lab experiments. We know what can make bubbles go away in certain lab
situations, but are not sure how exactly this translates to big markets.

> > >But at the same time we can't deny the effectiveness of the US Federal
> > >Reserve over the last two decades in moderating the business cycle and
> > >keeping the economy on a generally even keel.
> >
> > I think many people do deny this. I'm not sure I share your confidence.
>Take a look at ...
>If you look at their figures over the last 150 years we find that the
>down/up month ratio has gone from 18/35 pre WWI to 11/50 post WWII.
>The economy spent 1/3 of its time in recession back then, and only 1/6 of
>the time now. This is a big improvement and I think we can give credit
>to our improved understanding of economic theory.

I agree that this is suggestive; I just caution against too much confidence.
Lots and lots of things changed in the world before 1910 vs after 1950.

Robin Hanson
Asst. Prof. Economics, George Mason University
MSN 1D3, Carow Hall, Fairfax VA 22030
703-993-2326 FAX: 703-993-2323

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