T he test of a first-rate intelligence, said F. Scott Fitzgerald, is ability to hold two opposing views at same time and still function. In today's convulsing economy, this ability is essential to sanity, if not survival. One day Federal Reserve cuts interest rates, and Dow jumps 350 points; next day brings news of labor unrest in Brazil, and Dow plunges. One week situation seems to be stabilizing; next week Alan Greenspan, chairman of Federal Reserve, tells a group of business economists that in his 50 years of monitoring economic events, he has never seen kind of economic and financial shocks that grip world today. As Dorothy said to Toto in Wizard of Oz, I have a feeling we're not in Kansas anymore. Or as John Maynard Keynes would have said, we are in abnormal times when the [conventional] hypothesis of an indefinite continuance of existing state of affairs is less plausible than usual even though there are no express grounds to anticipate a definite change, [and when] market will [therefore] be subject to waves of optimistic and pessimistic sentiment, which are unreasoning and yet in a sense legitimate where no solid basis exists for reasonable calculation. In plainer English, when investors have developed strong confidence in conventions for forecasting, and when this confi-
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Robert Wade (1998) studied this question.