News Release

“New Economy” or Stock Bubble?

As the stock market continues to rise, many analysts are proclaiming a “New Economy.” They argue that computer technologies have created a market not bound by the physical constraints of the old industrial economy. But are we becoming increasingly unprepared for a downturn? Among the critics of the New Economy available for interviews are:

ELLEN FRANK
Professor of economics at Emmanuel College in Boston, Frank said today: “Market economies have long periods of growth and then recessions. Since World War II, we’ve had an infrastructure in place to deal with a recession: full employment budgeting, a welfare system, food stamps and Medicaid. In the past several years, that infrastructure has been dismantled or diminished. It’s not clear if we could put it together again if the economy were to decline. The prospect of the economy growing endlessly without hitting a bump is unlikely. History has shown that market economies work in business cycles. My big concern is whether the political system could turn around if there were a recession.”
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DOUG HENWOOD
Author of “Wall Street” and the forthcoming book “A New Economy?,” Henwood said today: “In some sense, there’s always a new economy; that’s been the story of capitalism for several centuries. But is it newly new? I don’t think so. Technology is still making some people richer while displacing others. Yes, the average American worker is doing better today than in the early 1990s, but that’s what happens when you keep the unemployment rate under 5 percent for several years.” Henwood, who edits Left Business Observer, added: “I like the net as much as anybody, but it won’t end poverty — incomes have never been so polarized at any time in history — or bring about world peace. In the 19th century, people thought that about the telegraph, and they were wrong.”
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DEAN BAKER
Author of “The New Economy: A Millennial Myth” in the current issue of Dollars and Sense magazine and co-director of the Center for Economic and Policy Research, Baker said today: “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?”
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For more information, contact at the Institute for Public Accuracy: Sam Husseini, (202) 347-0020