Stocks fell on Tuesday as investors sold technology shares on fears that fallout from the credit turmoil would hurt profits despite the U.S. government's plan to invest in banks to shore up the financial system.
Concerns about the economy's health and the profit outlook overshadowed the Treasury Department's plan to inject $250 billion in major banks to stabilize the financial system.
The Dow Jones industrial average was down 1.91 points, or 0.02 percent, at 9,385.70. The Standard & Poor's 500 Index was down 2.55 points, or 0.25 percent, at 1,000.80. The Nasdaq Composite Index was down 39.46 points, or 2.14 percent, at 1,804.79.
My guess is that this announcement was an effort to maintain the momentum of yesterday's good news from the markets. If yesterday's 900-point rise in the Dow was basically the largest "dead cat bounce" in recorded history, the last thing needed would have been a things-are-better-now message from the White House; and that seems to be the message that the markets are currently trying to send. A series of apparently planned and certain actions, not swayed by either bad or good news from Wall Street, may have more to do with building confidence than the details of the strategy behind those actions; but it looks as if the markets are beginning to recognize that economic health beyond the narrow corridor of Wall Street is also important.
In light of recent events, it may be worth revisiting some of the points that had been raised by those seeking alternatives to the original plan that Treasury Secretary Hank Paulson had submitted to the Congress. Consider, for example, Ann Pettifor's remark about Republican ideology being brought down by the discredited deregulation policies, which are basically the "Chicago School" legacy of Friedrich Hayek and Milton Friedman. This ideology grew out of a faith in the "reality" of elaborately-designed mathematical models; and that faith was neither more nor less reliable than any faith in a supernatural being, distinguished only by its pedigree from what we still call "The Age of Reason." The problem with the positivist legacy of The Age of Reason, however, is that its inheritors have always preferred looking at its capabilities to the exclusion of its limitations.
This was first brought home to me by a remark my former thesis advisor, Marvin Minsky, once made about the limitations of logic. (I am pretty sure he documented it in his book The Society of Mind.) Minsky observed that formal logic may be the best possible tool for providing systematic explanations for observations of past situations, but its power in representing the past provides no useful information about the future. Thus, the mathematical representations handed down to us by Hayek and Friedman may tell us much about how markets have behaved in the past; but, while, as William Shakespeare had Antonio say in The Tempest, "What's past is prologue," that prologue can only set a context for what will next happen, rather than defining what that will be. Markets are social systems, which can be, at best, only vaguely approximated by the objectivity of mathematics. Knowing the context is important in understanding how a social system is likely to behave; but that behavior still resides in the actors themselves, rather than the context in which they are acting.
It would appear that Paulson, along with those who hold his equivalent position in the other G7 nations, has cultivated an appreciation for the fundamental fact that markets cannot be controlled. I do not know if he believed this before taking over the Treasury Department; but I suspect that, at the very least, his experience in dealing with our Congress gave him a sobering appreciation for the limitations of control. The best he can do, then, is "set context" and then have the discipline of a good scientific observer to "act as audience" and see what the actors do. The actors certainly put on a good show on Wall Street yesterday, but Paulson seems to know enough to appreciate that one good scene does not justify bringing down the curtain. Yesterday's market behavior has now become prologue; and today's announcement is the latest contribution to the context-building effort.
The risk remains, however, that an improvement in the scenes played out by the actors on Wall Street may still distract us from the actors on Main Street. Yesterday on Morning Edition, Chana Joffe-Walt ran a story now listed on the NPR Web site as "Using Mail As An Economic Indicator." This was an interview with a mail carrier to demonstrate what we can learn about the state of the economy from what people are receiving in the mail. Needless to say, a lot of the data points were bills, particularly overdue ones. Thus, we learned that, on this particular "Main Street," bills usually came in white envelopes, overdue notices in yellow ones, and "serious" demands for payment in blue ones. We also learned that there has been a significant drop in letters from credit cards with an invitation to apply. What surprised me, however, was that a delivery that might include several yellow and even blue envelopes could easily also include a package from QVC or Fingerhut. Even when confronted with a frightening pile of bills that absolutely need to be settled, people are still buying "stuff," much of which they really do not need.
The problem on Main Street is not, primarily, a problem of frozen credit markets. It is the problem that James Scurlock put on the table in his Maxed Out documentary. Main Street remains heavily populated by men and women hopelessly addicted to consumerism; and that addiction has as much to do with the unsavory (if not downright fraudulent) practices of credit card companies as it does with the 24/7 hucksterism of cable television channels devoted entirely to shopping. If the Treasury Department is beginning to master the fine art of context-setting, then we are all going to have to own up to the fact that Main Street is in as much need for a change of context as Wall Street is. This will ultimately be a much harder task, and I am not even sure that the Treasury Department has the appropriate resources to take on such a responsibility. Indeed, if the Government is to show any initiative in taking on this problem, that initiative would probably best come from the Federal Trade Commission (FTC), which was created to be independent of all Cabinet-level Departments.
I would thus like to submit the "modest proposal" that it is time for Hank Paulson to schedule a serious meeting will William Kovacic, Chairman of the FTC. (There's a name that gets even less attention from the media than Dennis Kucinich or Ralph Nader!) If Paulson really wants to be serious about finding the most effective ways to deploy that $700 billion for which he is responsible and if the Congress really wants to be serious about exercising oversight in the allocation of those resources, then this seems like a good time to make sure that Main Street gets as much consideration as Wall Street. If the metaphor of "rescue" is as applicable to that vast population in dire need of rehabilitation from their addiction to consumerism as it is to falling share prices and failing banks, then it is time to talk about all those American citizens who matter most (since they are the ones who will ultimately determine the nature of that "health" metaphor for our economy); and it seems as if the FTC is as good a venue for such talk as any.