Paul Krugman: Coming Down to Earth

Friday, May 19th, 2006 by bill
From NY Times

Um, wasn’t the stock market supposed to bounce back after Wednesday’s big drop?

We shouldn’t read too much into a couple of days’ movements in stock prices. But it seems that investors are suddenly feeling uneasy about the state of the economy. They should be; the puzzle is why they haven’t been uneasy all along.

The rise in stock prices that began last fall was essentially based on the belief that the U.S. economy can defy gravity — that both individuals and the nation as a whole can spend more than their income, not on a temporary basis, but more or less indefinitely.