I don’t obsessively watch stock market prices, but after last week’s long Wall Street slide, today’s terrifying 1,000-point-at-open plunge of the Dow Jones index served as a reminder that the great God of our economy, the global marketplace, is an adolescent prone to panic attacks. Here’s Krugman’s shrugging judgment before he gets into a deeper analysis of a glut of savings chasing iffy investment opportunities:
Attempts to explain daily stock movements are usually foolish: a real-time survey of the 1987 stock crash found no evidence for any of the rationalizations economists and journalists offered after the fact, finding instead that people were selling because, you guessed it, prices were falling. And the stock market is a terrible guide to the economic future: Paul Samuelson once quipped that the market had predicted nine of the last five recessions, and nothing has changed on that front.
So all we can do at the moment is to hope the idiot psychology of “bargain hunting” turns it all around.