Prophets of Doom

Larry Summers notes the tremendous disparity between the optimism of investors and the doom and gloom purveyed by the commentariat.

He's on to something.

Despite hard evidence that, by a number of measures, things have been getting better not just in America but across the globe the MSM has been churning out an almost unending stream of dire predictions. This goes beyond simply trying to elect Democrats. It reflects a broad pessimism and disconnect from reality within the chattering classes. It may be that they are extrapolating from the self-inflicted decline of their own industry to the rest of the world.

Summers writes:

The headlines and opinion writers focus on how the U.S. is badly bogged down in wars in Afghanistan and Iraq; on an increasingly unstable Middle East and dangerous energy dependence; on nuclear proliferation that has already occurred in North Korea and that is coming in Iran; on the potential weakness of lame-duck political leaders; on record global trade imbalances and rising protectionist pressures; on increased levels of public and private-sector borrowing combined with record low saving in the United States; and on falling home prices and middle-class economic insecurity.

At the same time, financial markets are pricing in an expectation of tranquillity as far as the eye can see. Stock prices in the U.S. are at all-time highs. The risk premiums that corporations or developing countries have to pay to borrow money are at or near historic lows. In addition, estimates of the volatility of the stock, bond and foreign exchange markets inferred from the prices of options are near record lows.

Read it here.