Shame on The Economist Jude Wanniski May 14, 1998

Memo To: The Economist editors
From: Jude Wanniski
Re: Asset Inflation? Bubbles?

I’d heard that you devoted a cover story to the “bubble” on Wall Street several weeks ago, but inasmuch as I almost never look at your periodical anymore, I managed to avoid reading it. A staff assistant handed me a copy of your May 9 number with its cover on the Chrysler/Mercedes deal, as I headed to the dentist, so I wound up after all reading your “Bubble and Squeak” editorial on P. 17. The first sentence is all I needed to call for the pain killer: “Three weeks ago, The Economist suggested that America is experiencing an asset-price bubble,” as you went on to recommend that the Federal Reserve “should raise interest rates to let some air out of the bubble before asset inflation feeds through into consumer prices and does more damage.” What silly stuff.

Look, boys, there is no such thing as “asset inflation” when you are confronting the New York Stock Exchange. The reason you imagine that the billion people who have access to this largest, most transparent of liquid markets can be fooled into thinking the financial assets being traded therein have been artificially swollen is that you do not believe in open markets. If you want to argue that British Petroleum’s share price is inflated, I’m ready to hear you out, because I assume you will attempt to provide interesting information your reporter has uncovered that has not already wiggled its way into the market. I must shake my head in amazement that you expect me to swallow your pompous announcement that every company share traded on Wall Street has been ballooned by a dizzy billion people grasping greedily into thin air. Don’t you realize, sirs, how dumb that seems?

What I mean to say is that if you believe the marketplace is so inefficient that optimists can overtake pessimists to a degree that constitutes a “bubble,” you must believe that people carefully selected by your staff would do better in managing the economy. Hey, why don’t you announce that you are betting one million pounds that the bubble will burst by a date certain? If you are not prepared to lose one million pounds in such an endeavor, you might realize you are peddling hot air coming out of the word processor of some young man who can barely afford to have his one suit dry-cleaned every year or so. Do you know what I’m saying?

There is no reason for The Economist to continue to publish economic nonsense week in and week out, year in and year out. You have been publishing from the closing days of the Napoleonic wars, if I remember correctly. For a great stretch of that time, you were on the ball. You will of course continue to fool a hundred thousand Americans each week into thinking you know what you are talking about, but it would be so much more satisfying to you and your staff if you decided one morning to walk away from the neo-Keynesian paradigm. When that day comes, I will read it outside my dentist’s office, knowing painkiller is not readily at hand.