Home Forum Political Economy The concept of systemic fear Reply To: The concept of systemic fear

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Scot Griffin
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4. I think the WSJ critique here is misguided. The writer contrasts two examples – one relative, the other absolute: (1) an equal 10% increase/decrease in the stock prices of a very big and a very small company; and (2) an equal $10bn increase/decrease in the earnings of these same companies. In my view, this is a comparison of apples and oranges. Because the very large company has a greater number and/or a more expensive stock price than the very small company, a 10% increase in the price of this very large company has a much lager absolute effect than a 10% increase in the price of a very small company. Market-cap basing helps reflect these absolute differences. This market-cap basing isn’t necessary with EPS, since this measure is already computed in absolute terms (dividing the $ sum of all earnings by the number of all outstanding shares). This is why a $10bn gain/loss of the two companies should be treated equally. Had the WSJ writer complained that S&P weighted equal % changes in prices but didn’t weight equal % change in earnings, then the criticism would have been valid. But as stated, I think it is invalid. 5. I look forward to an empirical analysis of both stocks and bonds that explains the changing correlation of stock price and recent earnings, and why changes in the correlation correlate so tightly with the stock price/wage ratio.

4. I just wanted to bring this to your attention just in case it mattered. Again, I am not a statistician, but I was concerned there might be something in how the S&P was doing things that might create a dependency somehow. If you are good with their approach, then I am fine, too.

5. I look forward to somebody doing that, as well. The fact remains that a lot of things in finance started changing around the same time. To me, they indicate aggressive creording, as you say.  Capitalists no longer fear the ruled because the ruled think they’re capitalists, too, and they’ve been conditioned to blame their government for their failures, not capitalists.  If you accept the phenomenon you’ve discovered as true, regardless of how you label it or what you believe motivates it, it seems to indicate a fundamental change to the capitalist creorder, and if the correlation is increasing with time, maybe that indicates we’re still in transition towards a new steady-state.

In closing, one of the necessary constituent elements of capitalism is fraud. Without fraud, in particular the “normative myths” such as the duality of politics and economics, capitalism would never have been successful. Capitalists indicate in everything they do that they know that the stock market is subject to risk and uncertainty, i.e., they know they can’t just let everything ride and hope for the best, but as long as they can control that to ensure differential accumulation, they don’t mind making less in the near term to ensure steady growth in the long term. What you call “systemic fear” may just be another manifestation of differential accumulation.