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Lex maniac

Investigating changes in American English vocabulary over the last 40 years

irrational exuberance

(1990’s | bureaucratese | “mania,” “speculation,” “fiscal irresponsibility”)

This expression took hold instantly. It sprang from the fertile mind of Federal Reserve chair Alan Greenspan on December 5, 1996 and soon became ubiquitous in financial discourse, as it remains to this day. Within a few years, it became possible to encounter it elsewhere, but such uses have never become common. I can’t think offhand of another example of a new phrase taking off so fast ex nihilo; it got 500 hits in December 1996 on LexisNexis after a grand total of zero before that; Google Books shows maybe one or two random instances before Greenspan. That is a reflection not of Greenspan’s popularity, but his majesty in financial circles, the ritual awe with which his every word or decision (one forgot for a while that the Fed was actually made up of several governors, not just one emperor) received from the rattiest day trader or the suavest mandarin. There have been other expressions that were born at a specific time and place (“trophy wife,” “tiger mother,” “factoid,” “deep doo-doo”), but has any of them shot out of the gate quite so precipitously?

The phrase recalls the old expression, “throwing good money after bad,” except that in some cases there isn’t any good money. “Irrational exuberance” involves excessive risk and excessive debt run up in pursuit of unreliable investments. When one person overdoes it, it doesn’t matter a whole lot to the larger market, but when everyone does, the consequences can create a wide swath of destruction and despair. In order to prevent such panics (as we used to call them), or collapses (as we call them now), the government must regulate banks and commodities markets. During eras when no one wants to do so, the boom and bust cycle starts again.

Greenspan’s exact words — “How do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?” — illustrate his practice of avoiding direct statements and forcing auditors to guess more or less confidently at his meaning; one thinks of wall posters in Beijing under Mao or of the Oracle of Delphi. All you can really get out of his question is a theoretical possibility that the market might overvalue enough stocks, say, to cause a bubble. Now that’s taking a stand! Is it too much to ask that the chair of the Federal Reserve seek to forestall asset bubbles or remind investors in no uncertain terms that it is possible to buy too much on the margin or pay too dearly for a chance to pick up a few extra millions? That would mean open dissent from the fanatical, and entirely unsubstantiated, faith that the market — a bunch of workaholic moneygrubbers driven by desire for personal gain — is somehow infallible if left alone. Well, we all know that’s bullshit, but that doesn’t seem to keep us from admiring, and even electing, those who proclaim it as gospel truth.

Investor psychology isn’t particularly complex; as long as some assets somewhere — Chinese stocks, African diamonds, Gulf of Mexico oil, U.S. junk bonds — do well, the money has somewhere to go, investors feel secure, and the numbers keep going up. Now that many of us have our retirement funds invested in mutual funds, rises in stock market value are widely cheered, but only a few of us will ever amass fortunes worthy of Croesus. Too few to buy sufficient consumer goods to keep the economy humming — that’s why maldistribution of wealth leads to stagnation and falling fortunes for most people. Too much money in too few hands, a sure breeding ground for irrational exuberance.

Thanks to lovely Liz from Queens and almost-as-lovely Lenny from Cherry Valley for this week’s contribution. Even when you think he is not listening, Lex Maniac hears all.

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