The Era of the Big Bubble Is Over

As the Dow Jones Industrial Average intermittently peaks above the record closing high of 11,722.98 set in January 2000, investors naturally are wondering if these new highs will turn out to be as fragile as the high of the Clinton era turned out to be. Not likely. The dynamics of this bull market are those of a classic boom—not a bubble. This is because stock values are being pushed aloft by high rates of profit.

The Clinton-era bull market, on the other hand, was accompanied by sluggish and even negative profit growth. Driven aloft by Al Gore’s botched attempt at telecom deregulation, the tech market crashed the moment investors came to understand that the Telecom Act of 1996 would fail to bring about the promised benefits of deregulation. The lesson of the Clinton bubble is that entrepreneurs may be attracted to apparent deregulation, but will only stay for the real thing. Let’s hope that the current Congress has learned that lesson.

The lesson of the Bush Boom is that investors who vote with their dollars against the wealth creating effects of tax cuts will come to regret it.