KLEIN: The R-Word


That's me throwing off all the "R-Word Indexes" which claim to predict whether or not we are entering a recession based on how many times the word appears in the media.

Of course it's not just journalists who have the power to destroy the lives of millions with their careless word selections. After Vice-President-Select Dick Cheney used the R-word last week, the Clinton administration's chief economic advisor accused the Bush team of "talking down our economy." Don't they know about the s-words? Slowing, softening, slipping and -- if absolutely necessary -- slumping.

There's a name for investing the repetition of a word or phrase with the power to change real world events. It's called magic. And we all know that the economy of the 21st century isn't based on magic. It's based on carefully calibrated rules of supply and demand.I can't bring about a recession just by writing about it, can I?

Oops, as Britney might say, I did it again.

The global economy is now at the mercy of enchanted words because words are what brought on this "period of unprecedented prosperity" in the first place. Think venture capitalists writing $20-million checks based on a doodle on a cocktail napkin and a promise about a "new new thing." Think soaring IPOs for companies that, by all traditional indicators -- sales, assets, profits -- simply do not exist. Think Pets.com.

What were investors buying into when they sent the NASDAQ soaring? As Thomas Frank outlines in his new book, "One Market Under God," they were buying ephemeral, magical things. Earning potential. Brand image. Buzz. Spells cast by market mystics like George Gilder who could turn stocks into gold just by saying their names. "The future itself [was] generously whispering its secrets into the ears of the faithful and making us all wealthy beyond our wildest dreams," Mr. Frank writes of this mass delusion.

According to Harvard economist John Kenneth Galbraith, market booms are always brought about by "incantation" -- the hypnotic recitation of phrases over and over. This stock will soar to unimagined heights. This executive sees the future.

In his book, "The Great Crash," Professor Galbraith describes the "speculative orgy" in 1928 as a "mass escape into make-believe. Men sought not to be persuaded of the reality of things but to find excuses for escaping into the new world of fantasy" in which stock prices, increasing by "vaulted leaps," bore no relationship to corporate earnings.

The same flight into fantasy characterized the dot-com frenzy, only our make-believe worlds are even more fantastic, powered as they are by Intel and available on DVD. The high-tech boom of the last few years has not only been fueled by a real-world demand for high-tech products. Overwhelming, it has been powered by technology's ability to super-amplify our incantations. Put simply: new toys let us cast spells on stocks like never before.

Our modern prayers for prosperity are blasted all day long on CNN, CNBC and Bloomberg, as well as their on-line equivalents. It is there that reporters, pundits, economists, investment bankers and corporate executives collectively willed the economic boom into being, breaking only for commercials selling wireless gadgets that let you trade online any time, anywhere. Think of it as the corporate-world equivalent of the Natural Law Party, which believe that if enough people simultaneously bounce up and down on Yoga mats, peace, enlightenment and prosperity will follow.

That's why, during the boom, there was never much time for bad economic news inside the prayer circles on CNBC. Market agnostics were not invited to point out stagnant income levels for low-wage workers or widening disparities between rich and poor. Scarce talk of increasingly casual employment relationships, or soaring rates of U.S. incarceration, both masked by low employment rates. There was simply no room for such heresy: in a faith-based economic boom, it takes uninterrupted hand holding and visualization to keep the boom alive. And it worked, for a while. The satellite-beamed incantations and temples of Internet trading have brought more people into the market than ever before. Investing has become an international past-time, Buffettology a global religion.

But in recent weeks it has been revealed that there is a flip side to this faith. If incantations can bring us into a boom fueled by vastly overvalued stocks, tean incantation of another sort -- the recitation of the dreaded "R word" -- can trigger a bust as well. And not just on the stock market, but also at the mall, as consumers stop shopping because their portfolios have collapsed.

Put another way, we talked our way into this boom, we can talk our way out of it too. Like magic.


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