An economist who predicted a collapse of stock prices a year ago, when the Nasdaq composite index was near its peak, said today that “the nation’s political leaders chose to ignore the stock market bubble” — and “as a result, millions of families have seen their dreams of a secure retirement or their children’s college education vanish.”

In a news release issued by the Institute for Public Accuracy on the afternoon of March 16, 2000 (a day when the Nasdaq closed at 4,717.39), Dean Baker of the Center for Economic and Policy Research said: “The main feature of the ‘new economy’ is a stock market bubble of unprecedented magnitude. When the bubble bursts, the new economy will just be a bad memory. The inflated stock market has created enormous distortions in the economy, the ramifications of which will only be apparent when stock prices return to more normal levels. If the market falls 50 percent and loses $10 trillion of wealth in a correction, it’s going to be very hard to avoid a recession. A lot of these dot.coms are worth a corner lemonade stand and are putting real companies out of business. What are you going to tell people who lose much of their retirement savings in their 401K when there’s a downturn?”

Today, Baker said: “The decline in the stock market was an entirely predictable event for anyone familiar with basic arithmetic, even if the exact timing could not be known in advance. The nation’s political leaders chose to ignore the stock market bubble and instead focused their attention on distant and relatively minor problems like potential shortfalls in the Social Security trust fund in 30 or 40 years or the reappearance of budget deficits in a decade or two. As a result, millions of families have seen their dreams of a secure retirement or their children’s college education vanish with the stock market bubble. The level of negligence of the nation’s political leaders in ignoring the stock bubble exceeds anything since the days of Herbert Hoover.”

Baker is the author of several related papers, including “The Costs of the Stock Market Bubble,” “The New Economy: A Millennial Myth,” and “Double Bubble: The Implications of the Over-Valuation of the Stock Market and the Dollar.” (Baker is co-director of the Center for Economic and Policy Research. Detailed information is available at CEPR’s website.)

To arrange an interview with Baker, contact him at: dean.baker@worldnet.att.net. Also available at the Center is co-director Mark Weisbrot, weisbrot@cepr.net.

Also available for interviews: Ellen Frank, economics professor at Emmanuel College in Boston, author of Stocks Run Amok; frank@emmanuel.edu

For further information, contact at the Institute for Public Accuracy:
Sam Husseini, (202) 347-0020; David Zupan, (541) 484-9167