Monday, September 29, 2008

Stock Market Crash in Perspective

I'll admit I'm pretty shaken by the most recent economic developments. But this Corner post entitled "The Sky Has Not Fallen" by Peter Robinson is noteworthy:
We'll see what happens tomorrow, of course, but in the meantime it's worth noting that today the Dow Jones Industrial Average fell only about seven percent.


Yes, only.

On October 19, 1987, it fell by more than 22 percent.
And a much more detailed post along the same line at Volokh conspiracy.
Past history shows that stock market drops, even big ones, don't necessarily cause longterm damage to the economy. Today's drop in stock values, while the largest in absolute terms, is not even in the top 10 relative to total shareholder value. The 1987 stock market crash was much more severe - a 22.6% loss in share value on the Dow Jones in one day - three times today's 7% drop. Yet the economy recovered swiftly, in part because policymakers were wise enough to let failing firms go bankrupt and free up their resources for use by more efficient industries.
Tomorrow will be very interesting, indeed.

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