A Financial Singularity? The Stock Market Bubble of the 1990s

During the stock market boom of the late twentieth century the capitalization of the stock market grew more than 150 percent between 1994 and 1999 alone--a growth wildly disproportionate to the growth of the underlying economy, even in that period of historically brisk expansion. (Where the stock market capitalization-to-GDP ratio stood at a mere 71 percent in 1994 it was over 153 percent in 1999, more than twice as high, even while U.S. Gross Domestic Product grew by better than a fifth, even after adjustment for inflation.)

It was the conventional wisdom among at least a significant section of financial "experts" that this was some wonderful new normal, with the surge in asset values to somehow continue for a good long time to come, these apparently trying to outbid each other for the public's attention with ever-higher predictions of how high the Dow Jones average would go within the next several years. (Dow Jones 36,000! Dow 40,000! Even Dow 100,000!)

Assuming anything at all but the market's having been released from the laws of economic gravity, this was a big bet on just how well the "real" economy was going to do in these years over euphoria over computing, the Internet and related technologies and the possibilities some claimed to see in them--one sees how much so when they think about what it would have meant if the economy lived up to the investor expectations implied in those stock prices. If, for example, the stock market's capitalization had grown at that rate for the next two decades, and the real economy fallen no further behind the growth of the stock market's capitalization than it was in 1999.

That would have meant a roughly 20 percent a year real economic growth rate for the next two decades, and a nearly forty-fold expansion of the U.S. economy, producing a U.S. GDP of some $700 trillion in today's dollars. Alas, U.S. GDP in 2019 was, in today's terms, more like $24 trillion--a mere thirtieth that sum. And long before the disparity could grow so stark the bubble went bust, just a few months into 2000.

Looking back it is impossible to picture what those decades of 20 percent a year growth would have looked like, with the same going for their somehow producing a country thirty times richer than it is today. In fact, it does not seem an exaggeration to characterize the situation as one of financial and economic singularity--which brings to mind that other Singularity that Ray Kurzweil said so much about in 1999. Something like that technological Singularity would seem the only way in which such a financial boom could have proven a winning bet--such that it seems we can speak of Wall Street's behavior giving the impression that Kurzweil's Singularity really was imminent.