“Dow 36,000″ guy says Santorum’s tax plan doesn’t add up

by Andrew Gelman on January 15, 2012 · 2 comments

in Media

This is an interesting clash of worldviews that I wouldn’t have expected. I am not competent to evaluate the arguments made here, it’s just interesting to consider the political alignments. Perhaps a rough analogy is Paul Krugman’s disagreements with Obama in the 2008 primaries. If Santorum does somehow win the Republican nomination, I assume Hassett would support him as being preferable to than the alternatives (just as Krugman felt about Obama).

P.S. I’m not saying Hassett = Krugman. Krugman never wrote a book called Dow 36,000 (and, given that Hassett talks about his back of the envelope calculations, I think his ill-fated Dow prediction is relevant to any evaluation of his expertise here). I’m just thinking about the differences between intra-party and inter-party disagreements.

P.P.S. I just came across this which I wrote last year and is still relevant, I think:

Assurances of the soundness of the market did not stop even after the 2008 market crash. In 2010 two Yale professors published a book recommending that young adults from affluent families go into debt to buy stocks and then hold them for many years to prepare for retirement. James Glassman and Kevin Hassett’s 1999 book, Dow 36,000, has been discredited since the early 2000s, but that hasn’t stopped Glassman, who is currently hosting a regular show on PBS, or Hassett, a columnist for Bloomberg News. Americans have been getting false messages of security from all directions, and the senders of these messages remain active participants in our public discourse. Retirement riches from compound interest are as much of an unfunded obligation as any government program.

{ 2 comments }

Chris January 15, 2012 at 9:21 pm

I think it’s a case of academics’ expertise giving them the courage to speak against prominent party figures (albeit ones likely to fade into obscurity).

Hassett’s peer-reviewed publications are mostly on tax policy.

Krugman’s area of expertise is trade policy. His early journalistic career consisted partly in bashing Democrats that disagreed with him on the issue. His bashing of Robert Reich obviously didn’t lead him to endorse Bob Dole!

Paul January 16, 2012 at 12:03 pm

I haven’t read Glassman and Hassett’s book, but they are correct that if stocks and bonds were priced with the same risk premium, the Dow would have been about 36,000. One thing they failed to take into account was that if stocks were priced at the same risk premium as bonds, their relative volatility would increase proportionately to their increase in price. At 36,000, the Dow’s daily volatility would be around 6%, producing a continual state of investor panic, which in turn would make Dow 36,000 unsustainable.

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